Judge: Lee W. Tsao, Case: 20NWCV00666, Date: 2024-01-09 Tentative Ruling

Case Number: 20NWCV00666    Hearing Date: January 9, 2024    Dept: C

PIH Health Hospital-Whittier vs Cigna Healthcare of California, Inc., et al.

Case No.: 20NWCV00666

Hearing Date: January 9, 2024 at 9:30 a.m.

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TENTATIVE RULING

I.             Defendants Cigna Healthcare of California, Inc., Cigna Health and Life Insurance Company, and Connecticut General Life Insurance Company’s (collectively “Defendants”) Demurrer as to the Eighth, Ninth, Tenth, Eleventh, and Twelfth Causes of Action are OVERRULED.

II.            Defendants’ Motion to Strike Punitive Damages is DENIED.

III.          Defendants’ Motion to Strike Restitution is DENIED.

IV.         Defendants’ Motion to Strike Unfairness allegations is GRANTED with 30 days leave to amend. 

Plaintiff to give notice.

Background

In the operative First Amended Complaint (“FAC”), Plaintiffs allege they are two hospitals (PIH Health Whittier Hospital  and PIH Health Downey Hospital) that provided emergency medical services to patients who were plan participants in employer sponsored healthcare plans. Cigna administered claims on behalf of said plans. 1 (FAC, ¶¶ 2-4; 29-32). Plaintiffs allege that they were underpaid by Cigna for services that were provided both before and after they were under written contract with Cigna. (FAC, ¶¶ 7; 38; 44 - 47; 51-52; 58-59; 68; 72-76; 79-82; 84-87). Plaintiffs also allege that after their written contracts with Cigna termination on August 1, 2019, Cigna Health and Life Insurance Company (‘CHLIC”) and Connecticut General Life Insurance Company (“CGLIC”) sent out false explanations of benefits (“EOBs”) to their patient insureds and false explanations of payment (“EOP”) to the Plaintiffs which purportedly understated the amounts owed Plaintiffs by the insureds. (FAC, ¶¶ 1, 94-122; and 124 – 150.) Plaintiffs maintain that as a result, the insureds were given a false sense of security that they did not owe the difference between what CHIC and CGLIC paid and what Plaintiffs charged for their services; and that Plaintiffs were mislead about the nature of coverage which effectively prevented them from billing the patient insureds for the balance that these defendants had not paid for Plaintiffs’ services. (FAC, ¶¶ 109 – 110; 113 – 115; 119; 139-140; 142-147.)

The FAC asserts twelve causes of action against Cigna Healthcare of California, Inc. (“CHC”), CHLIC and CGLIC either collectively or separately. There are three breach of contract causes of action. The first cause of action is by Plaintiff PIH Health Whittier against CHC for breach of written contract. The second cause of action is by Plaintiff PIH Health Whittier against CGLIC for breach of written contract. The third cause of action is by PIH Health Downey against CHC, CHLIC and CGLIC for breach of written contract. The fourth cause of action is by Plaintiff PIH Health Whittier and the fifth causes of action is by PIH Health Downey against all three defendants for breach of implied for breach of implied contract – emergency services. The sixth cause of action is by Plaintiff PIH Health Whittier and the seventh cause of action is by PIH Health Downey against all three defendants for a recovery for services rendered. The eighth cause of action is by both Plaintiffs against CHC for violations of California Business and Professions Code Section 17200 (Unfair Competition Law, commonly referred to as the “UCL”). The ninth cause of is by Plaintiffs against CHLIC and CGLIC for injurious falsehood. The tenth cause of action is by Plaintiffs against CHLIC and CGLIC for fraud. The eleventh cause of action is by both Plaintiffs against CHLIC and CGLIC for violations of the UCL. Finally, the twelfth cause of action is by Plaintiffs against all the defendants for violations of the UCL.

Request for Judicial Notice

Defendants request Judicial Notice of the First Amended Complaint. Items within the Court’s file are not required to be judicially noticed.

A.   Demurrer

Legal Standard

The party against whom a complaint has been filed may object to the pleading, by demurrer, on several grounds, including the ground that the pleading does not state facts sufficient to constitute a cause of action. (CCP § 430.10(e).) A party may demur to an entire complaint, or to any causes of action stated therein. (CCP § 430.50(a).)

Discussion

According to Plaintiffs, the explanation of benefit statements (“EOBs”) sent by Defendants to the insureds fraudulently misled the insureds into believing that Defendants had negotiated heavily discounted rates with Plaintiffs for out-of-network services and that the insureds were therefore not liable for the difference between what Defendants paid the Plaintiffs for their services and Plaintiffs full billed charges for their services. (FAC, ¶¶ 1; 8-10.) Plaintiffs allege that as a result of these purported misrepresentations about negotiated discounts for their services, Defendants retained customers they would not have retained if those customers knew that Defendants allowed its written contracts to terminate with Plaintiffs resulting in payments to Plaintiffs at rates they found unacceptable, thereby leaving the insureds responsible for paying the difference between Plaintiffs’ charges and the amounts paid by Defendants. (FAC, ¶¶ 10-11.)

i.             Ninth Cause of Action for Injurious Falsehood

In an action for injurious falsehood, the plaintiff must plead and prove, among other things, pecuniary loss resulting from the publication by the defendant of a false statement harmful to the interests of another. (Polygram Records, Inc. v. Superior Court (1985) 170 Cal.App.3d 543, 549.) Thus, pecuniary loss is an essential element of an injurious falsehood claim. Damages are also an essential element of a fraud claim. (See, e.g., Engalla v. Permanente Medical Group (1997) 15 Cal.4th 951, 974.) For that reason, fraudulent representations that work no damage cannot give rise to an action at law. (See, Abbot v. Stevens (1955) 133 Cal.App.2d 242, 247.)

Plaintiffs in their injurious falsehood and fraud causes of action make allegations about the amount of monetary damages Plaintiffs claim to have suffered. (See, FAC, ¶¶121 and 149 alleging $6,036,739 plus interest as monetary damages). They also allege that: (1) False statements in the EOBs made it “impossible for Plaintiffs to collect their charges from Defendants’ Insureds because the misrepresentations misled the Defendants’ insureds into believing that they did not owe anything more than the amount set forth in the ‘What I Owe’ line item in the EOBs” (FAC, ¶¶ 116 and 140); and (2) False statements in the EOPs deprived plaintiffs of “their right to negotiate a price for their services—a right that is essential to their financial stability.” (FAC, ¶¶119 and 147.)

Defendants argue that Plaintiffs make no allegation that it is legally impossible for them to collect charges from patients or to negotiate a price for their services. Instead, their allegations reveal that they face only a “practical choice” which is attributable to the business decisions they, themselves, made. (See, e.g.. FAC, ¶113 [“the patient would believe that Plaintiffs were acting improperly if they billed the patient a higher amount”], ¶115 [plaintiffs “did not want to risk violating the legal prohibition on balance billing”], and ¶116 [detailing reasons plaintiffs did not balance-bill patients, none of which involve a legal prohibition against doing so].)

Plaintiffs argues that Defendants’ speculation is insufficient to establish that the allegations in the complaint are inadequate to state a cause of action. (See Perdue v. Crocker National Bank, (1985) 38 Cal.3d 913, 922, 216.)  Instead they present that in evaluating the sufficiency of a complaint, “the question of plaintiff's ability to prove [her] allegations, or the possible difficulty in making such proof does not concern the reviewing court.” (Id.)

At this stage of the proceedings, the Court must treat the allegations of the complaint as true and can sustain the demurrer only if the complaint fails to state a cause of action as a matter of law. (Cal. Civ. Proc. Code § 430.30.) Here, Plaintiffs sufficiently and specifically allege damages. The Court, at this stage takes the FAC’s allegations as true.  Accordingly, Plaintiffs make a claim for pecuniary loss and the Demurrer as to the ninth and tenth causes of action is OVERRULED.

ii.            Tenth Cause of Action for Fraud

Defendants go on to argue alternatively that the tenth cause of action for Fraud is not Plead with the requisite specificity.

The elements necessary to state a cause of action for fraud are (a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or “scienter”); (c) intent to defraud, i.e. induce reliance; (d) justifiable reliance; and (e) resulting damage. (Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951, 974.) To establish fraud, a plaintiff must show that he acted so as to alter his legal relationship by personally relying on the fraudulent misrepresentation of another. (Id., at 976-977.)

Defendants argue that Plaintiffs’ allegations fail to adequately plead a cause of action for fraud. First, Defendants argue, Plaintiffs fail to identify any corporate employees of CHLIC or CGLIC who were purportedly involved in any allegedly fraudulent conduct or who allegedly made any fraudulent representations in the EOBs or the EOPs. Defendants further contend Plaintiffs fail to identify the insureds who received these allegedly fraudulent statements in their EOBs and they fail to state when these insureds or Plaintiffs actually received these EOBs or EOPs other than to allege in the most vague and general terms that CHLIC or CGLIC began a practice of sending EOBs and EOPs with purportedly false statements after the parties’ contracts terminated effective August 1, 2019.

In opposition, Plaintiffs argue that the fraud claim alleges that Cigna intentionally made misstatements in the EOPs sent to PIH for a certain period and identify the false statements made therein. (FAC at ¶ 142, 146.) Plaintiffs contend defendants have superior knowledge regarding the factual basis of the dispute. The alleged misrepresentations all took place in EOBs that Cigna sent to its members and in EOPs that Cigna sent to PIH. (FAC at ¶¶ 104, 112.) Plaintiffs maintain that since Cigna created the documents containing the misrepresentations, it knows who created them, when they were created, and when they were sent and therefore there are no facts underlying the fraudulent documents that are not already within Cigna’s knowledge. Furthermore, Plaintiffs argue the Complaint alleges the exact language of the false representations that Cigna made in the EOBs and the EOPs.

In Committee on Children’s Television, Inc. v. General Foods Corp., (1983) 35 Cal.3d 197, the California Supreme Court noted “certain exceptions which mitigate the rigor of the rule requiring specific pleading of fraud. Less specificity is required when it appears from the nature of the allegations that the defendant must necessarily possess full information concerning the facts of the controversy, [e]ven under the strict rules of common law pleading, one of the canons was that less particularity is required when the facts lie more in the knowledge of the opposite party.” (Id. at 217.) Further, the court held that where there are many similar false statements at issue “in a case such as the present one, considerations of practicality enter in… plaintiffs allege thousands of misrepresentations in various media over a span of four years—representations which, while similar in substance, differ in time, place, and detail of language and presentation. A complaint which set out each advertisement verbatim, and specified the time, place, and medium, might seem to represent perfect compliance with the specificity requirement, but as a practical matter, it would provide less effective notice and be less useful in framing the issues than would a shorter, more generalized version.” (Id. at 217.)

The FAC identifies the EOBs and EOPs at issue, states the misrepresentations made by those EOBs and EOPs verbatim, identifies verbatim the language upon which the alleged misrepresentations are based, and explains why the representations at issue were false. (FAC at ¶¶ 104-112, 134-142.) Following Children’s Television, the FAC therefore adequately pleads fraud.

Accordingly, the Demurrer as to the Tenth cause of action is OVERRULED.

iii.           Eighth, Eleventh, and Twelfth Causes of Action under the UCL

“A UCL action is equitable in nature; damages cannot be recovered.” (Korea Supply Co. v. Lockheed Martin Corp., (2003) 29 Cal.4th 1134,1144.)  Aside from civil penalties, the equitable remedies available under the UCL are restitution and injunctive relief. (Bus. & Prof. Code § 17203.)

Defendants argue that Courts routinely dismiss UCL causes of action where a plaintiff fails to plead the inadequacy of legal remedies. (See, e.g.,Wikison v. Wiederkehr (2002), 101 Cal.App.4th 822, 834-835.) “Where . . . a plaintiff can seek money damages if she prevails on claims for breach of contract or breach of the implied covenant of good faith and faith dealing, she has an adequate remedy at law.” (Moss v. Infinity Ins., (N.D. Cal. 2016.) 197 F.Supp. 3d 1191, 1203.)  “Such is the case even if all of plaintiff’s non-UCL claims ultimately fail.” (Id.) Defendants contend that by making claims for monetary damages, Plaintiffs have a legal remedy and are barred from seeking equitable remedies.

In opposition, Plaintiffs contend that none of the cases cited by Cigna support its assertion that the availability of monetary damages precludes equitable claims for declaratory and injunctive relief. Plaintiffs cited Cal. Bus. & Prof. Code § 17205, which states “Unless otherwise expressly provided, the remedies or penalties provided by this chapter are cumulative to each other and to the remedies or penalties available under all other laws of this state.”

The elements of a cause of action under Cal. Bus. & Prof. Code § 17200 are different from the elements of PIH’s legal causes of action. These differences show that the claims are not duplicative, and can be asserted in the alternative. For example: “A claim based upon the fraudulent business practice prong of the UCL is distinct from common law fraud. A [common law] fraudulent deception must be actually false, known to be false by the perpetrator and reasonably relied upon by a victim who incurs damages. None of these elements are required to state a claim for ... relief under the UCL. This distinction reflects the UCL's focus on the defendant's conduct, rather than the plaintiff's damages, in service of the statute's larger purpose of protecting the general public against unscrupulous business practices.” (Morgan v. AT&T Wireless Services, Inc., 177 Cal.App.4th 1235, 1255 (2009)(citations omitted).) It follows that a 17200 cause of action can co-exist with a cause of action for fraud or other remedy at law because the causes of action have different elements and the 17200 action could succeed even if the action at law fails.

Defendants’ reliance upon Moss is misplaced.  In Moss, the plaintiff brought a breach of contract, and a 17200 cause of action against her insurance carrier. However, she sought only restitution of the amount she would have been paid if the contract had not been breached, therefore she did “not dispute that she has an adequate remedy at law by way of her breach of contract claims.” (Id. at 1203.) Because of this admission “the Court dismisse[d] Plaintiff’s UCL claim.” (Id.)  The court noted that Plaintiff must be given leave to amend should she seek to assert a UCL claim on an alternative basis not related to breach of the written contract. (Id.)

Here, the Court finds that PIH seeks declaratory and injunctive relief; and if Plaintiffs cannot establish all elements of common law fraud, they may still be able to meet the lower standards of proof and pleading that are applicable to 17200 claims. Unlike Moss where the 17200 claim was solely predicated on there being a breach of contract, PIH’s 17200 claims are not solely predicated on a common law fraud. The 17200 claims can succeed even if Defendants only acted unfairly or under the lower 17200 standard for establishing fraudulent conduct.

Accordingly, the Court OVERRULES the Demurrer as to the eighth, eleventh, and twelfth causes of action.

B.    Motion to Strike

Any party, within the time allowed to respond to a pleading may serve and file a notice of motion to strike the whole or any part thereof.¿(Code Civ. Proc., section 435, subd. (b)(1); Cal. Rules of Court, rule 3.1322, subd. (b).)¿The court may, upon a motion or at any time in its discretion and upon terms it deems proper: (1) strike out any irrelevant, false, or improper matter inserted in any pleading; or (2) strike out all or any part of any pleading not drawn or filed in conformity with the laws of California, a court rule, or an order of the court.¿(Code Civ. Proc. section 436, subd. (a)-(b); Stafford v. Shultz (1954) 42 Cal.2d 767, 782.)¿ 

In order to survive a motion to strike an allegation of punitive damages, the ultimate facts showing an entitlement to such relief must be pled by a plaintiff.” (Clauson v. Superior Court (1998) 67 Cal.App.4th 1253, 1255.)

Analysis

Defendants’ twenty-four requests to strike portions of Plaintiffs’ complaint can be narrowed to three main objectives to strike the: (1) punitive damages claims; (2) restitution claims; and (3) claims under the “unfair” prong of 17200.

i.             Punitive Damages

A request for punitive damages may be made pursuant to Civil Code § 3294(a) which provides that “[i]n an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.”

Here, Plaintiffs allege that Defendants knowingly made false EOB statements, which showed the Defendants had negotiated discounts for its members, but then passed false EOB statements to the hospital.  (FAC at ¶¶ 104, 106, 112 134, 136, 142.) Moreover, Plaintiffs allege that Defendants made the misrepresentations in the EOBs intending to harm Plaintiffs. They knew and intended that their false statements would prevent Plaintiffs from collecting the amounts that they were owed by the Defendants’ members. Plaintiffs allege that Defendants also knew and intended that the false statements would result in Defendants obtaining the benefits of having negotiated a discounted rate from Plaintiffs without having negotiated such a rate or paying the much higher rate that they would have been required to pay under a negotiated agreement. (FAC at ¶¶ 108, 138.)

The Court finds these allegations sufficient to plead punitive damages and the motion to strike as to these claims is DENIED.

ii.            Restitution

Defendants argue that Plaintiffs cloak their damages claim as restitution. Plaintiffs maintain that restitution allows for the recovery of what was lost but where they have a valid claim to the property.

“The concept of restoration or restitution, as used in the UCL, is not limited only to the return of money or property that was once in the possession of that person. Instead, restitution is broad enough to allow a plaintiff to recover money or property in which he or she has a vested interest.” (Korea Supply Co. v. Lockheed Martin Corp., (2003) 29 Cal.4th 1134, 1149.)

Here Plaintiffs contend they are recovering amounts that Defendant was legally obligated to pay for.

There are numerous California cases holding that health care providers can bring section 17200 actions seeking restitution for underpayments made by health plans. (See Bell v. Blue Cross of California, (2005) 131 Cal.App.4th 211, 217, fn. 6, 221, fn. 9; Coast Plaza Doctors Hospital v. UHP Healthcare, (2002) 105 Cal.App.4th 693.)

Accordingly, because Plaintiffs are attempting to get back money that allegly should have been paid to them, the Court DENIED the motion to strike as to the restitution claims.

iii.           Unfairness Claims

Defendants contend that since it is not a competitor or customer of Plaintiffs, the unfairness claims are unwarranted.

In Linear Tech. Corp. v Applied Materials, Inc., (2007) 152 Cal.App.4th 115, the California Court of Appeal held that "where a UCL action is based on contracts not involving either the public in general or individual consumers who are parties to the contract, a corporate plaintiff may not rely on the UCL for the relief it seeks." (Id. at 135.) The rationale underlying this limitation seems to be that since the UCL "was enacted to protect . . . consumers and competitors by promoting fair competition," the statute simply was never meant to reach non-competitor, business-to-business disputes flowing from negotiated agreements. (Id.)  

Here, this is a business-to-business dispute that does not concern the public at large or a competitor.  The Court notes Plaintiffs’ argument that the parties are competing for the ability to provide health care services to Defendants members.  However, this argument is unpersuasive as Plaintiffs did not provide health insurance benefits or offer them to Defendants’ members.

Accordingly, Defendants’ motion to strike the unfairness claims is GRANTED with 30 days leave to amend.