Judge: Stephen I. Goorvitch, Case: 23STCV19700, Date: 2024-03-20 Tentative Ruling

Case Number: 23STCV19700    Hearing Date: March 20, 2024    Dept: 39

Beach District Surgery Center v. Recreational Equipment, Inc.

Case No. 23STCV19700

Demurrer

            Plaintiff Beach District Surgery Center (“Plaintiff”) filed this action against Recreational Equipment, Inc. (“Defendant”) asserting causes of action for negligent misrepresentation and promissory estoppel.  Plaintiff provided medical care to patients who were insured under policies issued by Defendant.  Plaintiff alleges that Defendant underpaid for this medical care.  Defendant now demurs to the first amended complaint. 

“It is black letter law that a demurrer tests the legal sufficiency of the allegations in a complaint.”  (Lewis v. Safeway, Inc. (2015) 235 Cal.App.4th 385, 388.)  In ruling on a demurrer, the court must “liberally construe[]” the allegations of the complaint.  (Code Civ. Proc., § 452.)  “This rule of liberal construction means that the reviewing court draws inferences favorable to the plaintiff, not the defendant.”  (Perez v. Golden Empire Transit Dist. (2012) 209 Cal.App.4th 1228, 1238.)

As an initial matter, Defendant argues that this action is preempted by section 514, subdivision (a) of the Employee Retirement Income Security Act of 1974, commonly known as “ERISA.”  Defendant is incorrect.  ERISA does not preempt claims by health care providers for payment.  (See Blue Cross of California v. Anesthesia Care Associates Medical Group, Inc., 187 F.3d 1045, 1054 (9th Cir. 1999).)  Defendant does not address this case in its reply brief.    

Plaintiff’s first cause of action is for negligent misrepresentation.  The elements of negligent misrepresentation are: (1) The misrepresentation of a past or existing material fact, (2) Without reasonable ground for believing it to be true, (3) With intent to induce another’s reliance on the misrepresented fact, (4) Justifiable reliance on the misrepresentation, and (5) Damages as a result of the misrepresentation.  (See National Union Fire Company of Pittsburg, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 50.)  Plaintiff alleges that Defendant misrepresented that it would reimburse Plaintiff for medical services at a higher rate based upon “an average payment for a procedure provided by similarly situated medical providers within similarly situated areas or places of practice.”  (First Amended Complaint, ¶¶ 15, 66.)  Instead, Defendant reimbursed Plaintiff at the lower Medicare rate.  (See id., ¶¶ 67-68.) 

Defendant’s counsel argues that there was no misrepresentation of a past or existing fact because Defendant allegedly promised to reimburse Plaintiff in the future.  A plaintiff may maintain such an action if the plaintiff alleges “that the promisor did not intend to perform at the time he or she made the promise and that it was intended to deceive or induce the promise to do nor not do a particular thing.”  (Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159.)  In the instant case, Plaintiff alleges that Defendant knew at the time of the promise that it would pay only at the Medicare rate and intended to deceive Plaintiff.  (See id., ¶¶ 67, 69.)  These allegations are sufficient. 

Defendant’s counsel argues that there were no misrepresentations because the higher rate applied to in-network providers.  This is a factual issue that must be resolved on summary judgment.  The Court has considered Defendant’s remaining arguments and finds none to be persuasive.  Therefore, the demurrer to the first cause of action is overruled.

Plaintiff’s second cause of action is for promissory estoppel.  To state a claim for promissory estoppel, Plaintiff must allege that Defendant made a promise, which Defendant should reasonably have expected to induce Plaintiff’s substantial reliance, and that Plaintiff’s reliance caused injustice that can only be avoided by enforcement of Defendant’s promise.  (C & K Eng'g Contractors v. Amber Steel Co. (1978) 23 Cal. 3d 1, 6.)  As set forth above, Plaintiff alleges that Defendant promised to reimburse Plaintiff at a higher rate, which induced Plaintiff to provide medical services.  Plaintiff alleges that Defendant then reimbursed Plaintiff at the much lower Medicare rate.  (First Amended Complaint, ¶¶ 74-79.)  For pleading purposes, these allegations suffice. 

Defendant’s counsel argues that statement of “reimbursement methods” and “rate of payment” is not a “clear and unambiguous promise to pay in accordance with plaintiff’s expectation of payments,” citing Aton Center, Inc. v. United Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214.  Defendant’s counsel also argues that “[i]t is well settled that a verification of health benefits does not create an implied promise to pay,” citing Summit Est., Inc. v. Cigna Healthcare of California, Inc., No. 17-CV-03871-LHK, 2017 WL 4517111, at *6 (N.D. Cal. Oct. 10, 2017.)  The Court cannot resolve such issues on demurrer.  Whether Defendant made a clear and unambiguous promise or merely verified health benefits and disclose reimbursement rates is an evidentiary issue which must wait until summary judgment.

Based upon the foregoing, the Court orders as follows:

1.         The Court overruled Defendant’s demurrer.

2.         Defendant shall file an answer within thirty (30) days.

3.         The Court sets the following dates:

            Final Status Conference:        October 3, 2025, at 9:00 a.m.

            Trial:                                       October 14, 2025, at 9:00 a.m.

4.         The parties shall comply with all pretrial procedures for Department #39.

5.         Jury fees shall be posted within ten (10) days or the parties shall waive jury.

6.         Defendant’s counsel shall provide notice and file proof of such with the Court.