1 2 3 IN THE UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA 5 CASE NO. 4:20-cv-02249 YGR 6 PACIFIC RECOVERY SOLUTIONS, ET AL., ORDER GRANTING MOTIONS TO 7 Plaintiffs, DISMISS WITH LEAVE TO AMEND
8 v. Re: Dkt. Nos. 38, 39 9 UNITED BEHAVIORAL HEALTH, ET AL., 10 Defendants. 11
12 Plaintiffs1 bring this putative class action against defendants United Behavioral Health 13 (“United”) and Viant, Inc. for claims arising out of United’s alleged failure to reimburse plaintiffs 14 “a percentage” of the Usual, Customary, and Reasonable Rates (“UCR”) for Intensive Outpatient 15 Program (“IOP”) services, which plaintiffs provided to patients with health insurance policies 16 administered by United. In the complaint, plaintiffs assert, on their own behalf and on behalf of a 17 proposed class of similarly-situated out-of-network IOP providers, claims under Section 1 of the 18 Sherman Act and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and multiple 19 claims under California law. 20 Now pending are two motions to dismiss all claims in the complaint under Federal Rule of 21 Civil Procedure 12(b)(6) on the grounds that: (1) plaintiffs’ claims under Section 1 of the Sherman 22 Act and RICO fail for lack of statutory standing; (2) plaintiffs’ state-law claims are preempted by 23 the Employee Retirement Income Security Act of 1974 (“ERISA”); and (3) all claims in the 24 complaint are inadequately pleaded. 25 26
27 1 Plaintiffs are Pacific Recovery Solutions d/b/a Westwind Recovery, Miriam Hamideh 1 Having carefully considered the pleadings and the parties’ briefs, and for the reasons set 2 forth below, the Court GRANTS the motions to dismiss WITH LEAVE TO AMEND. 3 I. BACKGROUND 4 Plaintiffs allege as follows. Plaintiffs are out-of-network healthcare providers who 5 provided IOP services to patients who had health insurance policies that United administered. 6 Compl. ¶ 2, Docket No. 1. Before providing treatment to these patients, “each of the Plaintiffs 7 confirmed with United that the patients had active coverage and benefits for out of network IOP 8 treatment services” through verification-of-benefits (“VOB”) calls, during which United 9 “represented” that it would pay the patients’ claims in connection with such services. Id. ¶¶ 3, 17, 10 188, 195, 202, 209. The complaint references payment both “at a percentage” of the UCR and “at 11 the UCR rate.” See, e.g., id. ¶¶ 16, 25, 74. Due to the communications in question, plaintiffs and 12 United “understood” UCR to be “consistent with United’s published definition of UCR rates.” Id. 13 ¶ 324; id. ¶ 17 n.6 (alleging that United published a definition of UCR on its webpage describing 14 out-of-network benefits). Thus, plaintiffs provided IOP services to the patients in reliance of 15 United’s representations. Id. ¶¶ 3, 17, 188, 195, 202, 209. 16 United’s representations that it would pay a percentage of the UCR were false, because 17 “United did not pay UCR amounts for any of the patient claims at issue in this litigation.” Id. ¶ 18 13. Instead, United engaged defendant Viant, a third-party “repricer,” to “negotiate” 19 reimbursements with Plaintiffs. Id. United has a contract with Viant pursuant to which Viant has 20 “financial incentives” to negotiate reimbursements “at well below the UCR rate.” Id. ¶ 33. 21 During its negotiations with plaintiffs, Viant represented that it had authority to negotiate with 22 providers on the patients’ behalf and that “the rate it offers is based on the UCR for the provider’s 23 geographic location.” Id. ¶¶ 34, 48, 52. Viant’s negotiations with plaintiffs resulted in offers to 24 reimburse them for IOP services at an amount below the UCR, and United paid the patients’ 25 claims at the “reduced Viant amount.” Id. ¶¶ 13-14. Neither United nor Viant disclosed to 26 Plaintiffs the methodology they used for calculating the reimbursement rates for IOP services. Id. 27 ¶ 54. United “unjustly retained” the difference between the amounts it “should have paid” to 1 plaintiffs for the IOP services at issue and the amount that United actually did pay based on 2 Viant’s negotiated reimbursements. Id. ¶ 15. 3 “[L]iability for the cost of care” that plaintiffs provided to patients ultimately falls on the 4 patients. Id. ¶¶ 55, 155, 4. Plaintiffs “make every effort to recover unpaid amounts, first from 5 United, then from patients.” Id. ¶ 55. Plaintiffs “balance bill” patients for the amounts that the 6 patients owe after taking into account any amounts that United reimbursed. Id. ¶¶ 155, 4. 7 Further, United and other insurers were required as part of the settlement of an unrelated 8 litigation (“Ingenix litigation”) to underwrite the creation of a database called the “FAIR health” 9 database, which contains rates for the reimbursement for IOP treatment. Id. ¶ 20. However, 10 United and the other insurers were not required by the Ingenix litigation settlement to use the 11 FAIR health database.2 Id. 12 Plaintiffs assert the following claims on their own behalf and on behalf of a proposed class 13 of similarly-situated out-of-network IOP providers in the United States: (1) a claim for violations 14 of the Unfair Competition Law (“UCL”), Bus. & Prof. Code § 17200 et seq.; (2) intentional 15 misrepresentation and fraudulent inducement; (3) negligent misrepresentation; (4) civil 16 conspiracy; (5) breach of oral or implied contract; (6) promissory estoppel; (7) a claim under 17 RICO, 18 U.S.C. § 1962(c); and (8) a claim under Section 1 of the Sherman Act, 15 U.S.C. § 1. 18 II. LEGAL STANDARD 19 To survive a Rule 12(b)(6) motion to dismiss, a complaint must contain sufficient factual 20 matter that, when accepted as true, states a claim that is plausible on its face. Ashcroft v. Iqbal, 21 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the plaintiff pleads factual 22 content that allows the court to draw the reasonable inference that the defendant is liable for the 23 misconduct alleged.” Id. While this standard is not a probability requirement, “[w]here a 24 complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the 25 line between possibility and plausibility of entitlement to relief.” Id. (internal quotation marks and 26
27 2 Plaintiffs argue in their opposition that United represented to them that it would 1 citation omitted). In determining whether a plaintiff has met this plausibility standard, the Court 2 must “accept all factual allegations in the complaint as true and construe the pleadings in the light 3 most favorable” to the plaintiff. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). “[A] 4 court may not look beyond the complaint to a plaintiff’s moving papers, such as a memorandum in 5 opposition to a defendant’s motion to dismiss.” Schneider v. California Dep’t of Corr., 151 F.3d 6 1194, 1197 n.1 (9th Cir. 1998). A court should grant leave to amend unless “the pleading could 7 not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. 8 Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 9 III. DISCUSSION 10 As noted, defendants move to dismiss all claims in the complaint on the grounds that (1) 11 plaintiffs’ claims under Section 1 of the Sherman Act and RICO fail for lack of statutory standing; 12 (2) plaintiffs’ state-law claims are preempted by ERISA; and (3) all claims in the complaint are 13 inadequately pleaded. 14 The Court addresses each of these arguments in turn. 15 A. Section 1 of the Sherman Act 16 Section 1 of the Sherman Act makes it unlawful to form a “contract, combination in the 17 form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several 18 States[.]” 15 U.S.C. § 1. “To establish a claim under Section 1 of the Sherman Act, Plaintiffs 19 must show 1) that there was a contract, combination, or conspiracy; 2) that the agreement 20 unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; 21 and 3) that the restraint affected interstate commerce.” Cnty. of Tuolumne v. Sonora Cmty. Hosp., 22 236 F.3d 1148, 1155 (9th Cir. 2001) (citation and internal quotation marks omitted). In addition 23 to these elements, plaintiffs also must show that they were “harmed by the defendant’s anti- 24 competitive contract, combination, or conspiracy, and that this harm flowed from an anti- 25 competitive aspect of the practice under scrutiny.” Brantley v. NBC Universal, Inc., 675 F.3d 26 1192, 1197 (9th Cir. 2012) (citation and internal quotation marks omitted). This requirement is 27 generally referred to as “antitrust standing.” Id. (citation omitted). 1 Plaintiffs assert a Section 1 claim for damages and injunctive relief against defendants, 2 which is predicated on the theory that defendants entered into a horizontal conspiracy to fix the 3 amount that United reimbursed plaintiffs for the IOP services they provided to patients. Compl. ¶¶ 4 395-98. Plaintiffs allege that they were injured by the alleged conspiracy because it caused them 5 to be “underpaid” for their services and to incur “significant additional expenses in seeking proper 6 payment.” Id. ¶ 406. 7 Defendants move to dismiss plaintiffs’ Section 1 claim on the grounds that plaintiffs lack 8 antitrust standing because the injuries they allegedly suffered are derivative of their patients’ 9 injuries, and that plaintiffs have not alleged that competition in any market was restrained, or that 10 plaintiffs’ injuries resulted from any such injury to competition. 11 1. Damages 12 a. Standing 13 Section 4 of the Clayton Act permits private parties to sue for damages arising out of 14 injuries caused by violations of the federal antitrust laws. 15 U.S.C. § 15. In determining whether 15 a private party has “antitrust standing” to sue under Section 4, courts consider the following 16 factors: “(1) the nature of the plaintiff’s alleged injury; that is, whether it was the type the antitrust 17 laws were intended to forestall; (2) the directness of the injury; (3) the speculative measure of the 18 harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning damages.” 19 American Ad Management, Inc. v. General Tel. Co., 190 F.3d 1051, 1054-55 (9th Cir. 1999). 20 Here, the first factor is not met, because plaintiffs’ allegations do not raise the reasonable 21 inference that the type of injury they suffered is of the type that the antitrust laws were intended to 22 prevent. “[T]he central purpose of the antitrust laws, state and federal, is to preserve competition.” 23 Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 988 (9th Cir. 2000). Plaintiffs allege that 24 their patients are liable for the difference between the amount reimbursed by United and the 25 amount owed for the cost of the IOP services at issue. Plaintiffs are “injured” only to the extent 26 that their patients fail to pay them that difference. It appears that any such injury would arise 27 directly from the patients’ failure to comply with their financial obligations to plaintiffs, and not 1 intended to prevent this type of injury, which, based on the allegations in the complaint, has 2 nothing to do with competition. 3 The second factor also is not met, because plaintiffs’ injury, if any, was not proximately 4 caused by the alleged conspiracy. To assess the directness of the plaintiff’s injury, courts “look to 5 the chain of causation between [plaintiff’s] injury and the alleged restraint in the market.” 6 American Ad Management, 190 F.3d at 1058. Here, plaintiffs allege that the direct victims of the 7 alleged conspiracy were “United’s members” (i.e., plaintiffs’ patients) because they “incurred 8 liability for illegally inflated out-of-pocket payments for out-of-network IOP services than they 9 would have paid” in the absence of the conspiracy. Compl. ¶ 407. As noted above, plaintiffs 10 allege that their own injury arises only to the extent that their patients do not pay the amounts that 11 United does not reimburse. Accordingly, plaintiffs’ injuries appear to be derivative of injuries that 12 their patients allegedly suffered as a result of defendants’ alleged conspiracy. 13 The third factor also is not met, because plaintiffs’ injuries are speculative. To the extent 14 that a patient pays the balance owed to plaintiffs for the IOP services at issue, then plaintiffs 15 would suffer no injury as to that patient. Plaintiffs’ allegations do not raise the reasonable 16 inference that all patients with United coverage have failed to pay the balances they owe to 17 plaintiffs, or that it is certain that none of these patients will pay such balances in the future. 18 The remaining factors also are not satisfied, because plaintiffs’ allegations do not foreclose 19 the possibility that their patients, as the direct victims of the alleged conspiracy, could also sue 20 defendants to recover damages for the alleged conspiracy. If both the patients and plaintiffs were 21 to sue defendants under the Sherman Act, the risk of duplicative recoveries would be significant. 22 Avoiding such duplication would require fact-intensive inquiries and calculations. 23 In light of the foregoing, the Court cannot reasonably infer that plaintiffs have antitrust 24 standing. See In re Wellpoint, Inc. Out-of-Network “UCR” Rates Litig., 903 F. Supp. 2d 880, 902 25 (C.D. Cal. 2012) (dismissing claims by healthcare providers for lack of antitrust standing because 26 “there exist more direct victims in the form of the Subscribers [patients]” and because the 27 plaintiffs’ injury “is entirely derivative of the injury inflicted on the Subscribers”). Accordingly, 1 b. Elements of a Section 1 Claim 2 Even if plaintiffs had alleged facts to show that they have antitrust standing, their claim for 3 damages would nevertheless be subject to dismissal because plaintiffs have not alleged facts to 4 satisfy the first and second elements required to state a claim under Section 1. 5 To satisfy the first element of a Section 1 claim, the plaintiff must plead that “there is some 6 restraint of trade.” Newman v. Universal Pictures, 813 F.2d 1519, 1522 (9th Cir. 1987). Here, 7 plaintiffs allege conclusorily that defendants engaged in a horizontal conspiracy to “fix” the 8 amount that United reimbursed plaintiffs for their IOP services. Compl. ¶ 397. This allegation 9 does not raise the reasonable inference that defendants’ alleged conspiracy restrained trade 10 through price-fixing, because plaintiffs allege that Viant negotiated the amounts that United 11 reimbursed plaintiffs, which suggests that the amounts that United reimbursed plaintiffs differed 12 based on the outcome of each negotiation and were, therefore, not fixed. Further, plaintiffs admit 13 in their opposition that, if they had not provided IOP services to United patients, they would have 14 provided them to patients who were “insured by other health insurance providers or self-pay 15 patients,” suggesting that the conditions in the marketplace were such that plaintiffs were not 16 bound to accept United patients despite the allegedly “fixed” prices. Opp’n at 8, Docket No. 47. 17 Accordingly, the Court cannot reasonably infer that the alleged conspiracy restrained trade. 18 To satisfy the second element of a Section 1 claim, the plaintiff must plead that the 19 restraint at issue unreasonably restrained trade under either the per se rule or the rule of reason. 20 Cnty. of Tuolumne, 236 F.3d at 1155. Here, plaintiffs have not pleaded an unreasonable restraint 21 of trade under either the per se rule or the rule of reason. 22 The per se rule applies to restraints that are unlawful per se, such as horizontal agreements 23 among competitors to fix prices or to divide markets, which “always or almost always tend to 24 restrict competition and decrease output.” Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551 25 U.S. 877, 886 (2007) (internal citation omitted). Where the per se rule applies, the conduct at 26 issue is deemed to be unlawful under Section 1 without any inquiry into its actual effect on 27 competition. In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186, 1191 (9th Cir. 1 effect on the market or the parties’ intentions is necessary to establish a § 1 violation.”). Here, 2 there are no allegations in the complaint suggesting that defendants are competitors. Plaintiffs 3 allege that Viant negotiates rates with providers on behalf of United, suggesting that Viant is 4 United’s agent. Plaintiffs cite no authority showing that a conspiracy between a principal and an 5 agent who do not compete constitutes a horizontal restraint subject to the per se rule. 6 Additionally, as discussed above, plaintiffs’ allegations do not support the inference that 7 defendants “fixed” the amount they reimbursed plaintiffs for their services. Accordingly, the 8 allegations in the complaint do not raise the inference that defendants unreasonably restrained 9 trade through a horizontal price-fixing conspiracy subject to the per se rule. Cf. Arizona v. 10 Maricopa Cty. Med. Soc., 457 U.S. 332, 356, (1982) (holding that agreement among medical 11 practitioners “who compete with one another for patients” to fix the prices of their medical 12 services was per se unlawful under Section 1). 13 The rule of reason applies to all other restraints that are not subject to the per se rule. 14 Leegin, 551 U.S. at 885-86. “[T]he inquiry mandated by the Rule of Reason is whether the 15 challenged agreement is one that promotes competition or one that suppresses competition.” Nat’l 16 Soc’y of Prof’l Engrs v. United States, 435 U.S. 679, 691 (1978). Courts in the Ninth Circuit 17 employ a burden-shifting framework to apply the rule of reason, which requires the plaintiff, as 18 the first step, to “delineate a relevant market and show that the defendant plays enough of a role in 19 that market to impair competition significantly.” Cnty. of Tuolumne, 236 F.3d at 1150 (citation 20 and internal quotation marks omitted). The relevant market must “encompass the product at issue 21 as well as all economic substitutes for the product[,]” and it must include “the group or groups of 22 sellers or producers who have actual or potential ability to deprive each other of significant levels 23 of business.” Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1044 (9th Cir. 2008) 24 (citations and internal quotation marks omitted). Only if the plaintiff makes the threshold 25 showing of a relevant market in which the defendant has sufficient market power to impair 26 competition does the court then consider, at the second step, whether defendants can show that a 27 legitimate procompetitive effect is produced by the challenged behavior, and if so, whether the 1 plaintiffs can demonstrate, at the third step, that there are less restrictive alternatives to the 2 challenged conduct. Cnty. of Tuolumne, 236 F.3d at 1150. 3 In the complaint, plaintiffs do not define the relevant market, the entities that compete in 4 that market, the market power of each competitor, the product or products at issue, or the 5 substitutes for the product or products. Plaintiffs also have not alleged facts showing that 6 defendants have sufficient market power in the relevant market to impair competition. Further, 7 plaintiffs have averred no facts showing that defendants’ conduct lacks any procompetitive effect. 8 Accordingly, the Court cannot infer that defendants’ alleged conspiracy unreasonably restrained 9 trade under the rule of reason. 10 Accordingly, in light of the foregoing, plaintiffs’ claim for damages under Section 1 is 11 subject to dismissal. 12 2. Injunctive Relief 13 In the complaint, plaintiffs request, in addition to damages, “any necessary injunctions” to 14 bar defendants’ allegedly anticompetitive conduct. Compl. ¶ 409. 15 Section 16 of the Clayton Act governs claims for injunctive relief “against threatened loss 16 or damage by a violation of the antitrust laws[.]” 15 U.S.C. § 26. To obtain injunctive relief, “a 17 private plaintiff must generally meet all the requirements that apply to the damages plaintiff, 18 except that the injury itself need only be threatened, damage need not be quantified, and 19 occasionally a party too remote for damages might be granted an injunction.” Lucas Auto. Eng’g, 20 Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1234 (9th Cir. 1998). Threatened injury of the 21 type the antitrust laws were intended to prevent is a prerequisite to obtaining equitable relief. Id. 22 (citation omitted). 23 Here, as discussed above, plaintiffs have not alleged factual matter showing that they have 24 suffered or are likely to suffer injury of the type that the antitrust laws were intended to prevent. 25 Plaintiffs also have not averred facts to raise the inference that defendants’ alleged conspiracy 26 unreasonably restrained trade and thus violated the antitrust laws. 27 Accordingly, plaintiffs’ claim for injunctive relief is subject to dismissal. 1 B. RICO 2 Section 1962(c) of RICO provides, “It shall be unlawful for any person employed by or 3 associated with any enterprise . . . to conduct or participate, directly or indirectly, in the conduct of 4 such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.” 5 18 U.S.C. § 1962(c). 6 Here, plaintiffs allege that defendants violated RICO Section 1962(c). This claim is 7 premised on allegations that United and Viant are engaged in an illegal “kick-back” scheme 8 through which United and Viant conspired to take and retain for their own benefit funds given to 9 them by plan members. Compl. ¶ 360. Plaintiffs allege that “United’s agents” lied to plaintiffs 10 during “the initial VOB and Provider calls” by representing that “benefits were available and paid 11 based on the UCR,” id. ¶ 355, and that Viant misrepresented during its negotiations with plaintiffs 12 that it had authority to negotiate the rates of reimbursement on behalf of patients, id. ¶ 358. 13 Plaintiffs allege that United and Viant’s representations were false because United had a contract 14 with Viant to underpay the claims, which was not disclosed to plaintiffs. Plaintiffs further aver 15 that they were injured by this alleged scheme because they were underpaid for the IOP services 16 they provided to United patients. Id. ¶ 386. Plaintiffs allege that the predicate offenses for their 17 RICO claim are wire fraud and mail fraud in violation of 18 U.S.C. §§ 1341 and 1343, as well as 18 “Health Care Offenses” in violation of 18 U.S.C. § 24 and ERISA, 18 U.S.C. § 1027. Id. ¶¶ 354- 19 59. 20 Defendants move to dismiss this claim on the grounds that plaintiffs lack RICO standing 21 and that plaintiffs’ allegations are insufficient to state a claim under Section 1962(c). 22 1. Standing 23 To establish RICO standing, a plaintiff must plead an injury to business or property that 24 was proximately caused by the alleged RICO predicate offense. Hemi Grp., LLC v. City of New 25 York, 559 U.S. 1, 2 (2010) (“To establish that an injury came about by reason of a RICO violation, 26 a plaintiff must show that a predicate offense not only was a but for cause of his injury, but was 27 the proximate cause as well.”) (citation and internal quotation marks omitted). In determining 1 to the same factors that courts consider to determine whether a plaintiff has antitrust standing. See 2 Oregon Laborers-Employers Health & Welfare Tr. Fund v. Philip Morris Inc., 185 F.3d 957, 963 3 (9th Cir. 1999) (“To determine whether an injury is ‘too remote’ to allow recovery under RICO 4 and the antitrust laws, the Court applies the following three-factor ‘remoteness’ test: (1) whether 5 there are more direct victims of the alleged wrongful conduct who can be counted on to vindicate 6 the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the 7 plaintiff’s damages attributable to defendant’s wrongful conduct; and (3) whether the courts will 8 have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries.”). 9 The Court concludes that plaintiffs’ allegations do not raise the inference that they have 10 RICO standing for the same reasons that such allegations do not raise the inference that plaintiffs 11 have antitrust standing. By plaintiffs’ own allegations, defendants’ conduct appears to have 12 caused injury, first and foremost, to plaintiffs’ patients, because it increased the amounts that the 13 patients owed to plaintiffs for IOP services. See, e.g., Compl. ¶ 364 (“The excessive balance bills 14 that Plaintiffs are forced to issue is a clear harm to the patients as they now owe large sums that 15 were properly United’s responsibility to pay.”). The proximate cause of plaintiffs’ own injury 16 appears to be the non-payment by their patients of any amounts that United did not reimburse. 17 Plaintiffs’ injury appears to be, therefore, derivative of their patients’ injuries and too remote to 18 confer them with standing. Further, as discussed above, the risk of duplicative recoveries and of 19 having to engage in fact-intensive damages calculations to prevent such duplication is high if both 20 plaintiffs and their patients sue defendants for the same conduct. 21 Accordingly, plaintiffs’ RICO claim is subject to dismissal for lack of statutory standing. 22 See Oregon Laborers, 185 F.3d at 963-67 (holding that health care trust funds lacked standing 23 under RICO to sue tobacco companies because their injury was derived from the smokers’ injury 24 and was therefore too remote). 25 2. Elements of RICO Section 1962(c) Claim 26 To state a claim under Section 1962(c), a plaintiff must allege: “(1) conduct (2) of an 27 enterprise (3) through a pattern (4) of racketeering activity.” Odom v. Microsoft Corp., 486 F.3d 1 mistake, the circumstances constituting fraud or mistake shall be stated with particularity’ applies 2 to civil RICO fraud claims.” Edwards v. Marin Park, Inc., 356 F.3d 1058, 1065-66 (9th Cir. 3 2004) (internal citation omitted). 4 Even if plaintiffs had RICO standing, their RICO claim under Section 1962(c) would 5 nevertheless be subject to dismissal for failure to allege facts to satisfy the following elements. 6 a. Enterprise 7 “An enterprise that is not a legal entity is commonly known as an ‘association-in-fact’ 8 enterprise.” Id. at 940 (citation omitted). To plead an association-in-fact enterprise, a plaintiff 9 must allege: (1) a common purpose of engaging in a course of conduct; (2) an ongoing 10 organization, either formal or informal; and (3) facts that the associates function as a continuing 11 unit. Odom, 486 F.3d at 553 (citation omitted). 12 Here, plaintiffs have not averred factual matter suggesting that defendants acted with a 13 common purpose of engaging in a course of conduct. The allegations in the complaint describe a 14 contractual relationship between defendants that required Viant to negotiate reimbursements on 15 behalf of United. Plaintiffs allege no facts to raise the inference that defendants’ activities 16 pursuant to this contractual relationship were contrary to United’s obligations under the ERISA 17 plans it administered or to the terms of such plans. Courts routinely hold that the “common 18 purpose” requirement is not met where, as here, the allegations in the complaint are consistent 19 only with the execution of a routine contract or commercial dealing. See, e.g., Gardner v. Starkist 20 Co., 418 F. Supp. 3d 443, 461 (N.D. Cal. 2019) (“Simply characterizing routine commercial 21 dealing as a RICO enterprise is not enough.”); Gomez v. Guthy–Renker, LLC, No. 14-cv-01425- 22 JGB, 2015 WL 4270042, at *11 (C.D. Cal. Jul. 13, 2015) (“RICO liability must be predicated on a 23 relationship more substantial than a routine contract between a service provider and its client.”). 24 b. Conduct 25 To satisfy the “conduct” element of a Section 1962(c) claim, a plaintiff must allege facts 26 that the defendant had “some part in directing [the enterprise’s] affairs.” Walter v. Drayson, 538 27 F.3d 1244, 1249 (9th Cir. 2008) (citation and internal quotation marks omitted). Simply being “a 1 part” of the enterprise or “performing services” for the enterprise does not rise to the level of 2 direction required. Id. 3 Here, plaintiffs have not alleged facts to raise the inference that either United or Viant 4 directed the affairs of the alleged scheme for RICO purposes. Allegations showing that a 5 defendant conducted its own affairs is insufficient to raise the inference that the defendant 6 conducted the affairs of an enterprise. See Bias v. Wells Fargo & Co., 942 F. Supp. 2d 915, 939 7 (N.D. Cal. 2013) (Gonzalez Rogers, J.) (holding that RICO liability “depends on showing that the 8 defendants conducted or participated in the conduct of the ‘enterprise’s affairs,’ not just their own 9 affairs”) (emphasis in the original). As discussed above, the allegations in the complaint are 10 consistent only with defendants conducting their own affairs pursuant to the contract that required 11 Viant to negotiate reimbursements on behalf of United, which plaintiffs do not allege was contrary 12 to the ERISA plans that United administered. In the absence of allegations that raise the inference 13 that either defendant performed actions to further a scheme rather than their own individual affairs 14 pursuant to the contract just described, the conduct element is not satisfied. 15 c. Pattern of Racketeering Activity 16 A “pattern of racketeering activity requires at least two acts of racketeering activity, one of 17 which occurred after [1970] and the last of which occurred within ten years after the commission 18 of a prior act of racketeering activity.” 18 U.S.C. § 1961(5). Racketeering activity is also referred 19 to as the “predicate acts.” Living Designs, Inc. v. E.I. Dupont de Nemours and Co., 431 F.3d 353, 20 361 (9th Cir. 2005). Offenses that can constitute predicate acts for a RICO violation are listed in 21 18 U.S.C. § 1961(1). 22 As noted, plaintiffs allege that their RICO claims are predicated on wire fraud and mail 23 fraud in violation of 18 U.S.C. §§ 1341 and 1343, as well as “Health Care Offenses” in violation 24 of 18 U.S.C. § 24 and ERISA, 18 U.S.C. § 1027. Compl. ¶¶ 354-59. 25 The alleged “Heath Care Offenses” cannot serve as predicates for a RICO claim because 26 they are not listed in 18 U.S.C. § 1961(1). Plaintiffs argue that these offenses can give rise to a 27 RICO claim to the extent that they relate to the laundering of monetary instruments in violation of 1 1961(1) and can, therefore, serve as a RICO predicate offense, the complaint is devoid of 2 allegations that defendants engaged in money-laundering activities. Accordingly, in the absence 3 of allegations in the complaint that tie the “Health Care Offenses” in question to an offense that 4 can serve as a predicate for a RICO claim, plaintiffs’ RICO claim is subject to dismissal to the 5 extent that it is based on “Health Care Offenses.” 6 Wire fraud and mail fraud in violation of 18 U.S.C. §§ 1341 and 1343, respectively, can 7 serve as predicate offenses. Plaintiffs, however, have failed to allege facts to raise the reasonable 8 inference that defendants committed at least two instances of either offense. 9 Wire fraud and mail fraud share the same elements: (1) that the defendant formed a scheme 10 to defraud; (2) used the United States wires [for wire fraud] or United States mail [for mail fraud] 11 in furtherance of the scheme; and (3) did so with a specific intent to deceive or defraud. Schreiber 12 Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986) (citations omitted). 13 Alleged violations of RICO predicated on fraudulent communications, as the ones here, are 14 subject to Federal Rule of Civil Procedure 9(b), which requires that the plaintiff “state the time, 15 place, and specific content of the false representations as well as the identities of the parties to the 16 misrepresentation.” Id. at 1401. 17 Plaintiffs have not averred the specific facts required to raise the reasonable inference that 18 defendants committed at least two instances of mail fraud or wire fraud. The allegations in the 19 complaint do not identify the time, place, and specific content of the fraudulent communications at 20 issue, or identify the person or persons involved in such communications. Plaintiffs also do not 21 aver factual matter to raise the inference that such communications were sent over the United 22 States wires or United States mail across state lines. Accordingly, plaintiffs have not plausibly 23 alleged that defendants engaged in acts of mail fraud or wire fraud that constitute a pattern of 24 racketeering activity. 25 Based on the foregoing, plaintiffs’ RICO claim under Section 1962(c) is subject to 26 dismissal. 27 // 1 3. Conspiracy under Section 1962(d) 2 Section 1962(d) provides, “It shall be unlawful for any person to conspire to violate any of 3 the provisions of subsection (a), (b), or (c) of this section.” A defendant cannot be liable for a 4 RICO conspiracy under Section 1962(d) if the defendant is not liable under the substantive RICO 5 provisions, namely Sections 1962(a), (b), or (c). See Howard v. Am. Online Inc., 208 F.3d 741, 6 751 (9th Cir. 2000) (“Plaintiffs cannot claim that a conspiracy to violate RICO existed if they do 7 not adequately plead a substantive violation of RICO.”). 8 In the complaint, plaintiffs allege that defendants’ purported scheme in violation of RICO 9 was a “conspiracy.” See, e.g., Compl. ¶ 368. To the extent that plaintiffs sought to assert a claim 10 against defendants under Section 1962(d) based on these allegations, such a claim is subject to 11 dismissal because plaintiffs have failed to plead a substantive RICO violation under Section 12 1962(c), as discussed above. See Howard, 208 F.3d at 751. 13 C. State-law Claims 14 Plaintiffs assert the following state-law claims against defendants: (1) violation of the 15 UCL, Bus. & Prof. Code § 17200 et seq.; (2) intentional misrepresentation and fraudulent 16 inducement; (3) negligent misrepresentation; (4) civil conspiracy; (5) breach of oral or implied 17 contract; and (6) promissory estoppel. All of these claims are predicated on the theory that United 18 falsely represented during the VOB calls that it would reimburse plaintiffs for IOP services at a 19 percentage of UCR. 20 Defendants move to dismiss these claims on the grounds that they are preempted under 21 ERISA Section 502(a) and ERISA Section 514(a) because the claims depend on the existence and 22 terms of ERISA plans. 23 ERISA Section 502(a), 29 U.S.C. § 1132(a), is irrelevant here. Complete preemption 24 under Section 502(a) is a “jurisdictional rather than a preemption doctrine,” as it “provides a basis 25 for federal question removal jurisdiction.” Marin Gen. Hosp. v. Modesto & Empire Traction Co., 26 581 F.3d 941, 945 (9th Cir. 2009). Here, the Court need not determine whether federal question 27 removal jurisdiction exists, because the complaint was filed in federal court, not state court, and 1 because plaintiffs assert federal claims that provide a basis for jurisdiction under 28 U.S.C. 2 § 1331. 3 ERISA Section 514(a) expressly preempts “any and all State laws insofar as they may now 4 or hereafter relate to any employee benefit plan[.]” 29 U.S.C. § 1144(a). “While this section 5 suggests that the phrase ‘relate to’ should be read broadly, the Supreme Court has recently 6 admonished that the term is to be read practically, with an eye toward the action’s actual 7 relationship to the subject plan.” Providence Health Plan v. McDowell, 385 F.3d 1168, 1172 (9th 8 Cir. 2004) (citing New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. 9 Co., 514 U.S. 645, 655-56 (1995)). “Generally speaking, a common law claim ‘relates to’ an 10 employee benefit plan governed by ERISA ‘if it has a connection with or reference to such a 11 plan.’” Id. (citation omitted). “In evaluating whether a common law claim has ‘reference to’ a 12 plan governed by ERISA, the focus is whether the claim is premised on the existence of an ERISA 13 plan, and whether the existence of the plan is essential to the claim’s survival. If so, a sufficient 14 ‘reference’ exists to support preemption.” Id. (citations omitted). “In determining whether a 15 claim has a ‘connection with’ an employee benefit plan, courts in this circuit use a relationship 16 test. Specifically, the emphasis is on the genuine impact that the action has on a relationship 17 governed by ERISA, such as the relationship between the plan and a participant.” Id. (citations 18 omitted). 19 Here, the allegations in the complaint suggest that each of the state-law claims at issue 20 depends on the existence and terms of an ERISA plan. Plaintiffs connect United’s alleged 21 obligation to pay for IOP services at a percentage of the UCR to the patients’ ERISA plans by 22 alleging that “[e]very plan at issue in this litigation was obligated to pay out-of-network IOP 23 claims at the UCR rate.” Compl. ¶¶ 74, 75. Further, plaintiffs aver that the parties’ understanding 24 as to what United meant when it represented that it would pay a percentage of the UCR was based 25 on United’s published definition of UCR on its webpage describing out-of-network benefits, 26 which suggests that the UCR definition has a connection to the terms of benefit plans. See Compl. 27 ¶ 324 (alleging that plaintiffs and United understood UCR to be “consistent with United’s 1 UCR on its webpage describing out-of-network benefits). To the extent that plaintiffs’ state-law 2 claims depend on ERISA plans and their terms, such claims are preempted under ERISA Section 3 514(a). See Wise v. Verizon Commc'ns, Inc., 600 F.3d 1180, 1191 (9th Cir. 2010) (holding that 4 state-law claims predicated on “theories of fraud, misrepresentation, and negligence” are 5 preempted under Section 514(a) because they “depend on the existence of an ERISA-covered plan 6 to demonstrate that [the plaintiff] suffered damages”). 7 During oral argument, plaintiffs relied extensively on Fremont Emergency Servs. 8 (Mandavia), Ltd. v. UnitedHealth Grp., Inc., __F. Supp. 3d__, No. 219CV832JCMVCF, 2020 WL 9 1970710 (D. Nev. Feb. 20, 2020) to argue that their state-law claims are not preempted under 10 Section 514(a). There, providers of emergency services had provided emergency care to patients 11 “regardless of an individual’s insurance coverage or ability to pay.” Id. at *1. The providers 12 “never had a written agreement [with United] governing the rates of reimbursement for emergency 13 services rendered,” but they nevertheless submitted claims to United for reimbursement, and 14 United “routinely paid them” at the range of 75% to 90%. Id. United, without notice, reduced the 15 rates of reimbursement to 12% to 60%, which the providers alleged was “below the usual and 16 customary rates.” Id. The providers sued United in state court for state-law claims arising out of 17 United’s alleged “underpayment” of claims, and United removed the action to federal court on the 18 basis that the claims were completely preempted under ERISA Section 502(a). The providers then 19 moved to remand. The court held that the state-law claims were not preempted under ERISA 20 Section 502(a) and that federal question removal jurisdiction, therefore, did not exist based on 21 Section 502(a). Id. at *2. The court recognized that complete preemption under Section 502(a) 22 requires a finding, pursuant to Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004), that (1) the 23 plaintiff “could have brought his claim under ERISA § 502(a)(1)(b),” and that (2) “there is no 24 other independent legal duty that is implicated by a defendant’s actions.” Id. The court in 25 Fremont held that the first requirement for complete preemption was not met because the 26 providers could not have brought their claims under ERISA Section 502(a)(1)(b), as they “d[id] 27 not contend they are owed an additional amount from the patients’ ERISA plans” and their claims 1 independent of the terms of any ERISA plan. Id. Because federal question removal jurisdiction 2 did not exist by virtue of ERISA Section 502(a), the court remanded the case to state court. 3 Fremont is distinguishable. First, as noted, removal jurisdiction is not at issue; for that 4 reason, the analysis in Fremont regarding the applicability of complete preemption under ERISA 5 Section 502(a) has no bearing on the question the Court must answer here, which is whether the 6 state-law claims are subject to conflict preemption under ERISA Section 514(a). See Lyons v. 7 Alaska Teamsters Employer Serv. Corp., 188 F.3d 1170, 1172 (9th Cir. 1999) (“In an ERISA case, 8 in which the ground for removal is complete preemption, determining jurisdiction will necessarily 9 involve analyzing whether there is preemption of the plaintiff’s claims. However, the preemption 10 determination made for purposes of determining jurisdiction has no bearing on whether the 11 defendant can actually establish a substantive preemption defense [under ERISA Section 12 514(a)].”) (citations omitted). Second, the alleged agreement that formed the basis of the state-law 13 claims in Fremont had no connection to the terms of any ERISA plan, and the providers in that 14 case were not seeking further payments under the terms of an ERISA plan. Here, by contrast, the 15 allegations in the complaint suggest that the alleged representations by United that form the basis 16 of plaintiffs’ state-law claims have at least some connection to the terms of their patients’ ERISA 17 plans, as discussed above. Plaintiffs’ allegations do not raise the reasonable inference that they 18 had an agreement with United apart from the patients’ ERISA plans that governed the amounts of 19 United’s reimbursements for the IOP services in question. Further, plaintiffs appear to be seeking 20 additional reimbursements under their patients’ ERISA plans, as they request that the Court order 21 United to “reprocess” the claims for reimbursement “using an appropriate methodology.” Compl. 22 at 60. 23 Accordingly, plaintiffs’ state-law claims are preempted under ERISA Section 514(a) and 24 are subject to dismissal on that basis. 25 D. Leave to Amend 26 Federal Rule of Civil Procedure 15(a)(2) provides that courts “should freely give leave [to 27 amend] when justice so requires.” In re Korean Air Lines Co., Ltd., 642 F.3d 685, 701 (9th Cir. 1 2011). The Court, however, need not grant leave to amend where amendment would be futile. 2 Smith v. Pac. Props. & Dev. Corp., 358 F.3d 1097, 1101 (9th Cir. 2004). 3 As noted during oral argument, the Court appreciates plaintiffs’ attempt to rectify an 4 || allegedly unjust issue on a class-wide basis. However, as alleged, plaintiffs have not stated a 5 viable claim. That said, because it is not clear that amendment of the complaint would be futile, 6 || the Court will grant plaintiffs leave to amend their claims to attempt to show that they have 7 antitrust and RICO standing, and to otherwise state cognizable claims under Section | of the 8 Sherman Act and RICO. The Court also will grant plaintiffs leave to amend their state-law claims 9 to allege a cognizable theory for relief that avoids preemption under ERISA Section 514(a). E 10 || IV. CONCLUSION 11 For the foregoing reasons, the Court GRANTS defendants’ motions to dismiss WITH LEAVE S 12 || TOAMEND. Plaintiffs may file an amended complaint within thirty (30) days of the date this order 5 13 is filed. Defendants may file a response to the amended complaint within thirty (30) days of the 14 || date it is filed. 15 This order terminates Docket Numbers 38 and 39. 16 IT IS SO ORDERED. 17 || Dated: August 25, 2020 Layee Hesgtofftecs,— YVONNE GONZALEZ ROGER 18 UNITED STATES DISTRICT COURT JUDGE 19 20 21 22 23 24 25 26 27 28