Judge: Mark E. Windham, Case: 23STLC05145, Date: 2023-12-04 Tentative Ruling

Case Number: 23STLC05145    Hearing Date: January 29, 2024    Dept: 26

Beach District Surgery Center v. Bachem Americas, Inc., et al.

DEMURRER

(CCP §§ 430.31, et seq.)

TENTATIVE RULING:

Defendant Bachem America’s Inc.’s’s Demurrer to the First Amended Complaint is OVERRULED. DEFENDANT IS TO FILE AND SERVE AN ANSWER TO THE COMPLAINT WITHIN 20 DAYS’ NOTICE OF THIS ORDER.

ANALYSIS:

Plaintiff Beach District Surgery Center (“Plaintiff”) brought this action against Defendant Bachem Americas, Inc. (“Defendant”) on August 15, 2023. Following the filing of Defendant’ demurrer to the Complaint, Plaintiff filed a First Amended Complaint on November 14, 2023.

On December 26, 2023, Defendant filed the instant demurrer to the Complaint. Plaintiff filed an opposition on Janaury 16, 2024.

Discussion

The First Amended Complaint alleges causes of action for (1) negligent misrepresentation; and (2) promissory estoppel. Defendant demurs to each cause of action for failure to allege facts sufficient to state a cause of action and preemption under federal law. (Citing Code Civ. Proc., § 430.10, subd. (e).) The Demurrer is accompanied by a meet and confer declaration in compliance with Code of Civil Procedure section 430.41. (Demurrer, Yoo Decl., Exh. 1.)

Defendant also requests that the Court take judicial notice of the declaration of Gina Sparks in support of the Demurrer. The Court takes judicial notice of the fact that Defendant is a plan sponsor of a group health plan governed by ERISA. (Demurrer, Sparks Decl., ¶5 and Exh. 1.) The request is granted pursuant to Cal. Evidence Code section 452, subdivision (h).

Allegations in the First Amended Complaint

The First Amended Complaint alleges that Plaintiff is a corporation providing medical services. (FAC, ¶1.) Aetna Life Insurance Co. (“Aetna”) was Defendant’s agent regarding stating the manner of payment for medical services and providing other administrative services relating to the Patient’s and Defendant’s health plan. (Id. at ¶3.) The claims in this action are based on Plaintiff’s rights in its individual capacity and are not based on its patients’ contractual rights, through the patients’ insurance contract, policies, certificates of coverage, or other written agreements. (Id. at ¶6.) Defendant failed to make proper payment or underpaid Plaintiff for surgical care, treatment and procedures provided to Patients, who are insureds, members, policyholders, certificate-holders or were otherwise covered for health, hospitalization and major medical insurance through policies or certificates of insurance issued and underwritten by Defendant. (Id. at ¶7.) Aetna orally or otherwise represented to Plaintiff that the patient was an insured of Defendant, either as a subscriber to coverage or a dependent of a subscriber to coverage under a policy or certificate of insurance issued and underwritten by Defendant. (Id. at ¶8.) Defendant continues to receive valuable premium payments from the Patient and/or other consideration from Patient under the subject policies. (Id. at ¶9.) When a medical provider like Plaintiff has no written contract or preferred provider agreement with a health plan, the medical provider has no obligation to reduce its charges. (Id. at ¶¶12-13.) The health plan is not entitled to a discount from the medical provider’s total bill. (Id. at ¶14.) Insurers commonly promise to pay out-of-network providers their usual, customary, and reasonable rate (“UCR”). (Id. at ¶15.) The federal government defines UCR as, “The amount paid for a medical service in a geographic area based on what providers in the area usually charge for the same or similar medical service. The UCR amount sometimes is used to determine the allowed amount.” (Id. at ¶16.) Plaintiff’s charges are usual, customary, and reasonable under this definition. (Id. at ¶17.) Defendant or Aetna will utilize a medical bill database from Fair Health Inc. or the like to determine the exact amount to be paid for a medical claim. (Id. at ¶19.)

Patient WR received a surgical procedure from Defendant on January 30, 2023, and February 27, 2023. (Id. at ¶23.) On January 25, 2023, and February 21, 2023, Plaintiff’s representative, N. Escoto, spoke with Defendant/Aetna representatives, Abby and Rafael, regarding how Plaintiff would be paid for the services. (Id. at ¶24.) Aetna represented to Plaintiff that Defendant pays the UCR rate, not a Medicare Fee Schedule, for services in connection with procedure codes 64483, and 62323. (Id. at ¶¶29-31.) Despite these representations, Defendant knew or should have known it would not be paying Plaintiff at the UCR rate and would be paying Plaintiff at a Medicare rate. (Id. at ¶¶35-36.) Plaintiff relied on Defendant’s statements, promises, and representations in agreeing to provide medical services, unrelated to the plan document. (Id. at ¶39.) Following the procedure, Plaintiff submitted its claims; Aetna processed the bill for $20,400.00 and sent an EOB indicating a payment of $0.00. (Id. at ¶¶40-41.) This was well below the UCR amount represented during the oral communications between Plaintiff and Aetna. (Id. at ¶42.)

Demurrer to Entire Complaint – ERISA Preemption

Defendant first demurs to the entire First Amended Complaint on the grounds that the claims are preempted by section 514 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The relevant statutory provision is set forth at 29 U.S.C., section 1144, and states: “Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title.” (29 USC, § 1144, subd. (a).)

In support of its preemption argument, Defendant heavily relies on Bristol SL Holdings, Inc. v. Cigna Health Life Insurance Company (C.D. Cal. 2022) 2022 WL 18232296. In Bristol, the plaintiff was the successor-in-interest to a for-profit substance abuse treatment center. (Bristol SL Holdings, Inc. v. Cigna Health Life Insurance Company (C.D. Cal. 2022) 2022 WL 18232296, *1.) The defendant, Cigna, administers claims for healthcare benefits plans sponsored by employers. (Ibid.) While Cigna administers the claims, the claims are paid for by the sponsoring employer. (Ibid.) Bristol’s predecessor, Sure Haven, was an out-of-network provider with respect to Cigna and was required to follow certain requirements. (Ibid.) Following an investigation by Cigna into some of Sure Haven’s billing practices, Cigna issued a report with its findings of fraud and denying claims unless Sure Haven provided evidence of collecting patients’ full cost-share. (Id. at *2.) The denial of claims was made pursuant to an exclusion provision in the Cigna plan. (Id. at *2-3.) Bristol purchased the Sure Haven’s assets following its bankruptcy and brought suit to regarding Cigna’s non-payment with respect to 106 patients. (Id. at *3.)

Cigna moved for summary judgment and the federal district court ruled that Bristol’s state-law claims for breach of express and implied oral contract and promissory estoppel were preempted by ERISA. (Id at *7-8.) The district court ruled that state law claims that relate to an employee benefit fall into two categories: (1) “ ‘claims that have a reference to an ERISA plan,’ and (2) ‘claims that have an impermissible connection with an ERISA plan.’ Id. (quoting Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 319 29 (2016)) (cleaned up). ‘These two categories operate separately.’ Id.” (Id. at *7.) The district court found that Bristol’s state-law claims were “deeply intertwined” with the ERISA Plan because Sure Haven was required by the defendant to verify benefits under each patient’s plan and seek authorization when required before providing treatment. (Ibid.) Also, Bristol’s claims were “based on the preadmission verifications, pre-authorizations, and authorizations for services where [Cigna] consistently and specifically stated and agreed they would pay Sure Haven a percentage of the UCR….” (Id. at *8) In other words, “without referencing the ERISA plan, Bristol has no basis to argue that a contractual agreement was formed. The Plan is the reason Sure Haven called to verify benefits and seek authorization to provide services to Cigna-insured patients, and that then led to Cigna's alleged promise to pay a percentage of the UCR for those services.” (Ibid.)

Plaintiff’s opposition relies on a California case, Morris B. Silver M.D., Inc. v. International Longshore & Warehouse etc. (2016) 2 Cal.App.5th 793. In Morris, the plaintiff sued the defendant “to recover payment for health care services provided to [the defendant’s] policyholders.” (Morris B. Silver M.D., Inc. v. International Longshore & Warehouse etc. (2016) 2 Cal.App.5th 793, 796.) The trial court dismissed all the state law claims—for breach of oral contract, quantum meruit, promissory estoppel and interference with contractual relations—as preempted by ERISA. (Ibid.) The plaintiff alleged that before rendering services it would call the defendant to determine the amount it would pay. (Id. at 797.) The Court of Appeals in Silver determined the question of ERISA preemption by utilizing the two-factor test articulated in Memorial Hosp. System v. Northbrook Life Ins. Co. (5th Cir. 1990) 904 F.2d 236: (1) the state law claims address areas of exclusive federal concern, such as the right to receive benefits under the terms of an ERISA plan; and (2) the claims directly affect the relationship among the traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.” (Id. at 804.) It went on to hold that the plaintiff’s “contract/quasi-contract causes of action do not address an area of exclusive federal concern” and the plaintiff’s alleged right to reimbursement does not depend on the terms of the defendant’s policy. (Id. at 806-807.) “Rather, the claims are predicated on a garden-variety failure to make payment as promised for services rendered. To be sure, the claims would not exist but for an ERISA plan and are predicated on somebody's interpretation of the plan. But the fact an ERISA plan is an initial step in the causation chain, without more, is too remote of a relationship with the covered plan to support a finding of preemption.” (Id. at 807.) Such claims also do not “directly affect the relationship among the traditional ERISA entities—the employer, the plan and its fiduciaries, and the participants and beneficiaries.” (Id. at 804.) The claims are by third-party medical providers who are not participating providers and are out of network and the claims are based on representations and promises of payment made outside and independent of the terms of the ERISA plan, not on the terms of the ERISA plan itself. (Id. at 805 [citing Memorial Hosp., supra, 904 F.2d at 249-250].)

This Court will apply the standard for determining preemption as set forth in Silver, not Bristol. Silver explains that different federal courts have adopted different standards for determining ERISA preemption but that Memorial Hospital correctly articulates how to address claims by third-party medical providers. (See id. at 802.) Additionally, Silver is binding authority on this Court, while Bristol is merely persuasive. The Court notes that Defendant cites no California state law authority regarding preemption. Silver is also factually on par with this action. The gravamen of both cases is that the defendant orally agreed to pay the third-party medical provider in specified amounts, authorized the services, and then failed to pay as agreed. (Id. at 806.) Bristol is factually distinct because it involved allegations that the service provider (Safe Haven) was required by the defendant to verify benefits under each patient’s plan and seek authorization when required before providing treatment, such that the ERISA plan was the basis of the parties’ alleged contractual relationship. (Bristol SL Holdings, Inc. v. Cigna Health Life Insurance Company (C.D. Cal. 2022) 2022 WL 18232296, *8.) There are no similar allegations regarding the basis of the parties’ relationship in this action.

Therefore, Plaintiff’s causes of action for negligent misrepresentation and promissory estoppel are not preempted by ERISA.

1st Cause of Action for Negligent Misrepresentation

The elements of a cause of action for negligent misrepresentation are: (1) the defendant made a false representation as to a past or existing material fact; (2) the defendant made the representation without reasonable ground for believing it to be true; (3) in making the representation, the defendant intended to deceive the plaintiff; (4) the plaintiff justifiably relied on the representation, and (5) the plaintiff suffered damages as a result. (Majd v. Bank of Am., N.A. (2015) 243 Cal.App.4th 1293, 1307.) The specificity requirement is lessened but not eliminated where the defendant likely has greater knowledge of the relevant facts. (Chapman v. Skype Inc. (2013) 220 Cal.App.4th 217, 231.)

Defendant demurs on the grounds that the elements are not alleged with the requisite particularity, including the authority of the persons making the representations to speak on Defendant’s behalf. (Citing Tarmann v. State Farm Mutual Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 157.) As Plaintiff points out, however, the First Amended Complaint has alleged that the statements were made by Defendant’s representatives, “Abby” and “Rafael.” (FAC, ¶24.) Additionally, Tarmann points out that the specificity requirement is lessened when the facts lie more in the defendant’s possession. (Id. at 158.) Here, Plaintiff has alleged Defendant’s representatives’ first names, and the date and reference number of the calls. This is sufficient to meet the specificity requirement.

Next, Defendant argues that Plaintiff has not alleged a misrepresentation of a past or existing fact and that the representations concern future conduct, which is not actionable. (See FAC, ¶¶26-31.) Plaintiff argues in opposition that the conversation with Defendants’ representatives concerned its current method of paying for services, not future conduct. The allegations in the First Amended Complaint support this characterization. Plaintiff inquired of Defendant whether it paid the UCR for certain procedures, which Defendant’s agents affirmed it did so pay; likewise, Plaintiff inquired whether Defendant paid for such procedures using a Medicare Fee Schedule, which the agents denied. (Ibid.) These are representations of existing facts. In the case cited by Defendant, again, not binding federal district court rulings, the representations concerned future obligations to pay at a certain rate. (See Community Hospital of the Monterey Peninsula v. Aetna Life Ins. Co. (N.D. Cal. 2015) 119 F. Supp. 3d 1042, 1048; Regents of the Univ. of Cal. v. Principal Fin. Grp. (N.D. Cal.) 412 F. Supp. 2d 1037, 1045.)

Finally, the demurrer challenges that Defendant’s representations were made without grounds for believing them to be true. The First Amended Complaint, however, expressly alleges that despite the representation that Defendant pays for the subject services at the UCR rate, it knew or should have known, payment to Plaintiff would not be made at that rate. (FAC, ¶35.)

Therefore, the First Amended Complaint sufficiently alleges the elements of a cause of action for negligent misrepresentation. The demurrer to the first cause of action is overruled.

2nd Cause of Action for Promissory Estoppel

The “elements of promissory estoppel are (1) a clear promise, (2) reliance, (3) substantial detriment, and (4) damages….” (Toscano v. Greene Music (2004) 124 Cal. App. 4th 685, 692.) Defendant demurs to the cause of action for promissory estoppel on the grounds that it does not allege a clear and unambiguous promise because a statement of “reimbursement methods” or the “rate of payment” does not promise to pay a certain amount under California law. The demurrer relies on case law that holds “A “promise’ is an assurance that a person will or will not do something.” (Aton Center, Inc. v. United Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214, 1244.) In Aton, verification of benefits calls (“VOB”) were made to the insurer or claims administrator requesting information such as “individual member responsibility amounts, such as co-payments, co-insurance, and deductible” and “rate of reimbursement.” (Id. at 1219-1220.) The Court of Appeals did not dispute the plaintiff’s contention that representations regarding payment rates are “an appropriate factual predicate for promissory estoppel.” (Id. at 1227.) Rather, in the context of a motion for summary judgment, the Court of Appeals ruled that these VOB calls were not promises to pay because the plaintiff did not provide evidence that the defendant “gave” reimbursement methods. (Id. at 1227, 1244.) This is distinct from whether allegations of specific reimbursement methods are sufficient to overcome a demurrer.

Plaintiff’s opposition points to cases, albeit federal district court cases, that determined representations of payment at the UCR rate, like in this case, are sufficient to allege a promise in support of a cause of action for promissory estoppel. (Summit Estate, Inc. v. Cigna Health and Life Insurance Company (N.D. Cal. 2022) 2022 WL 958380, at *4; California Spine and Neurosurgery Institute v. United Healthcare Services, Inc. (C.D. Cal. 2018) 2018 WL 6074567, at *4; Summit Estate, Inc. v. United Healthcare Insurance Company (N.D. Cal. 2020) 2020 WL 5436655, at *6.)

Therefore, the Court finds the First Amended Complaint sufficiently alleges a clear and unambiguous promise by Defendant. The demurrer to the second cause of action is overruled.

Conclusion

Defendant Bachem America’s Inc.’s’s Demurrer to the First Amended Complaint is OVERRULED. DEFENDANT IS TO FILE AND SERVE AN ANSWER TO THE COMPLAINT WITHIN 20 DAYS’ NOTICE OF THIS ORDER.

Court clerk to give notice.