Ears & Hearing, P.A. v. Blue Cross & Blue Shield of Tex.

EARS & HEARING, P.A., v. BLUE CROSS AND BLUE SHIELD OF TEXAS,A DIVISION OF HEALTH CARE SERVICE CORPORATION

NO. 1:18-CV-00726-LY

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION

August 5, 2019

REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

Before the Court are Defendant's Motion to Dismiss (Dkt. No. 30); Plaintiff's Response (Dkt. No. 34); and Defendants' Reply (Dkt. No. 35). The District Court referred the above motion to the undersigned Magistrate Judge for a report and recommendation pursuant to 28 U.S.C. § 636(b) and Rule 1(c) of Appendix C of the Local Rules.

I. BACKGROUND

Ears & Hearing brings this case against Blue Cross and Blue Shield of Texas ("BCBSTX") alleging violations of the Texas Insurance Code, Texas Administrative Code, Texas Business & Commercial Code, and Texas common law. Ears & Hearing provides hearing screening services for newborns. BCBSTX sells private insurance plans known as Preferred Provider Organization plans ("PPOs"). Preferred providers are healthcare providers who have entered into a contract with BCBSTX and have agreed on a contractually specified reimbursement rate for services provided to BCBSTX insureds. By contrast, non-preferred providers have not entered into any contractual relationship with BCBSTX.

A key feature of PPOs is that insureds retain the right to seek medical care from non-preferred providers, however, insureds who choose to seek medical care from a non-preferred provider may be responsible for paying a higher percentage of the provider's fee than they would for a preferred provider. Ears & Hearing is a non-preferred provider and claims to have treated patients insured by BCBSTX. However, Ears & Hearing alleges that BCBSTX has failed to provide proper reimbursement for these services, in violation of the Texas Insurance Code and Texas Administrative Code. Ears & Hearing contends that, although it is a non-preferred provider, it is entitled to be reimbursed at the same rate as a preferred provider for certain services it performs because several of the areas it serves do not have a preferred provider available to render the services. In addition, Ears & Hearing asserts that BCBSTX's failure to properly pay certain claims constitutes an unfair claim settlement practice in violation of Chapter 542 Subchapter A of the Texas Insurance Code and a violation of the Prompt Payment of Claims Act.

Ears & Hearing further alleges that it attempted to enter into a preferred provider contract with BCBSTX but was offered a reimbursement rate that is 90% below its usual fee for its services. Based on these facts, Ears & Hearing asserts that BCBSTX has unreasonably prevented Ears & Hearing from being designated a preferred provider in violation of Texas Insurance Code section 1301. In addition, Ears & Hearing alleges that BCBSTX's actions constitute an unfair or deceptive trade practice in violation of Chapter 541 Subchapter B of the Texas Insurance Code and the Deceptive Trade Practices Act.

Ears & Hearing initially filed suit in Travis County District Court, anf BCBSTX removed it to this Court. BCBSTX now moves to dismiss Ears & Hearing's First Amended Complaint pursuant to Fed. R. Civ. P 12(b)(6).

II. LEGAL STANDARD

A. Rule 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss an action for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). In deciding a Rule 12(b)(6) motion to dismiss for failure to state a claim, "[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the [nonmovant]." In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks omitted), cert. denied, 552 U.S. 1182 (2008).

While a complaint attacked by a Rule 12(b)(6) motion does not need detailed factual allegations in order to avoid dismissal, the plaintiff's factual allegations "must be enough to raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Supreme Court has explained that a court need not accept as true conclusory allegations or allegations stating a legal conclusion. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) ("mere conclusions[ ] are not entitled to the assumption of truth."). A complaint must contain sufficient factual matter "to state a claim to relief that is plausible on its face." Id. (quoting Twombly, 550 U.S. at 570). "A claim has facial plausibility when the [nonmovant] pleads factual content that allows the court to draw the reasonable inference that the [movant] is liable for the misconduct alleged." Id.

B. Rule 9(b)

Federal Rule of Civil Procedure 9(b) imposes a heightened pleading requirement for allegations of fraud or mistake and requires a party that alleges fraud or mistake to "state with particularity the circumstances constituting fraud or mistake." FED. R. CIV. P. 9(b). "To plead fraudadequately, the plaintiff must 'specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.' " Sullivan v. Leor Energy, LLC, 600 F.3d 542, 551 (5th Cir. 2010). "Rule 9(b) requires, at a minimum, that a plaintiff set forth the who, what, when, where, and how of the alleged fraud." U.S. ex rel. Steury v. Cardinal Health, Inc., 625 F.3d 262, 266 (5th Cir. 2010) (citations and internal quotation marks omitted).

Texas district courts have consistently applied Rule 9(b)'s heightened pleading standard to claims under the Texas Insurance Code and Deceptive Trade Practices Act. Bige, Inc. v. Penn-America Ins. Co., 1-15-CV-292 RP, 2015 WL 5227726, at *4 (W.D.Tex. Sept. 8, 2015); see also DiNoto v. USAA Cas. Ins. Co., Civil Action No. H-13-2877, 2014 WL 4923975, at *6 (S.D.Tex. Sept.30, 2014) (plaintiff's Tex. Ins. Code and DTPA claims subject to 9(b) pleading standard); Shakeri v. ADT Sec. Services, Inc., 2014 WL 5780955, at *3 (N.D.Tex. Nov. 6, 2014) (applying 9(b) pleading standard to plaintiff's DTPA claim). Accordingly, the Rule 9(b) pleading standard applies to Ears & Hearing's claims of misrepresentation under the Texas Insurance Code and DTPA.

III. ANALYSIS

A. Breach of Contract Claim

In a diversity case such as this one, the court must apply state substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Ashland Chem. Inc. v. Barco Inc., 123 F.3d 261, 265 (5th Cir. 1997). To prevail on a breach of contract claim in Texas, the plaintiff must establish the following elements: (1) the existence of a valid contract, (2) performance or tendered performance by the plaintiff, (3) a breach of the contract by the defendant, and (4) damages caused to the plaintiff by the defendant's breach. Mullins v. TestAmerica, Inc., 564 F.3d 386, 418 (5th Cir. 2009); Aguiar v. Segal,167 S.W.3d 443, 450 (Tex.App.-Houston [14th Dist.] 2005). This Court and other district courts throughout the Fifth Circuit have consistently held that "a plaintiff must identify a specific provision of the contract that [the defendant]. . . allegedly breached." Jane Doe 12 v. Baylor Univ., 336 F. Supp.3d 763, 789 (W.D.Tex. 2018); Bedgood v. Nissan N. Am., Inc, A-16-CA-00281-SS, 2016 WL 3566689, at *5 (W.D.Tex. June 24, 2016). However, while a plaintiff must allege sufficient facts to show that he or she is not engaged in a "fishing expedition," the Court "must also take account of [the plaintiff's] limited access to crucial information." Innova Hosp. San Antonio, Ltd. P'ship v. Blue Cross & Blue Shield of Ga., Inc., 892 F.3d 719, 730-31 (5th Cir. 2018).

Ears & Hearing alleges that BCBSTX entered into insurance contracts with insureds who obtained services from Ears & Hearing, and insureds assigned their rights to payment under the contract to Ears & Hearing. Dkt. 29 at 17. Ears and Hearing contends that it therefore has contractual privity and has the right to sue for breach of contract. Id. The plaintiff's primary theory for breach of contract is that BCBSTX has not appropriately reimbursed insureds (and therefore it) at the rate that is required under the insureds' policies. Id. at 11, 17. This, Ears & Hearing contends, has "resulted in monetary damages to the insureds and to E&H." Id. at 17.

BCBSTX argues that Ears & Hearing's breach of contract claim should be dismissed because the claim for breach of contract is "impermissibly vague" and fails to identify specific contracts or contract terms that have been breached. Dkt. 30 at 7. BCBSTX asserts, therefore, that Ears & Hearing has failed to state a viable claim. Id. In support of this contention, BCBSTX quotes Am. Realty Trust, Inc. v. Travelers Cas. and Sur. Co. of Am., 362 F. Supp. 2d 744, 753-54 (N.D.Tex. 2005) and 5 Charles Alan Wright and Aurther R. Miller, FEDERAL PRACTICE AND PROCEDURE § 1235. Am. Realty Trust states that "the complaint must describe the alleged terms of the contractin a sufficiently specific manner," which for a written contract includes either a quote of the relevant contract language, a copy of the contract as an attachment, or a "summary of the contract's purported legal effect." Id. In response, Ears & Hearing admits that it "has not seen any Blue Cross contracts with insureds who used E&H services," but it contends that "[the] contracts exist, and presumably provide reimbursement provisions." Dkt. 34 at 5 (emphasis added). Referencing the reimbursement rates required by statute, Ears & Hearing states that "the contracts either misrepresent the reimbursement the insured is entitled to, or correctly state the rate . . . but fail to calculate it correctly in reimbursing insureds . . . [e]ither way, there is a breach of contract." Id. at 5-6.

In this case, Ears & Hearing has alleged the existence of a valid contract, performance by Ears & Hearing, breach of the contract by BCBSTX, and damages resulting from BCBSTX's breach of the...