Friedman v. AARP, Inc.

283 F.Supp.3d 873

Jerald FRIEDMAN, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.AARP, INC., AARP Services, Inc., AARP Insurance Plan, UnitedHealth Group, Inc., and United Healthcare Insurance Company, Defendants.

Case No. 14–00034 DDP (PLA)

United States District Court, C.D. California.

Signed January 16, 2018

Christopher Collins, Frank J. Janecek, Jr., Robbins Geller Rudman and Dowd LLP, San Diego, CA, Christopher C. Gold, Dorothy P. Antullis, Mark J. Dearman, Stuart A. Davidson, Robbins Geller Rudman and Dowd LLP, Boca Raton, FL, Michael F. Ghozland, Ghozland Law Firm, Los Angeles, CA, Sean Kennedy Collins, Sean K. Collins, Attorney at Law, Boston, MA, for Plaintiff

Brian Recor, Miami, FL, Alec W. Farr, Heather S. Goldman, Bryan Cave LLP, Washington, DC, Darci F. Madden, Jeffrey S. Russell, Byran Cave LLP, St. Louis, MO, Gregory J. Sachnik, Bryan Cave LLP, Dallas, TX, Sarah Burwick, Bryan Cave LLP, Santa Monica, CA, for Defendants

ORDER RE: DEFENDANTS' MOTION TO DISMISS

DEAN D. PREGERSON, UNITED STATES DISTRICT JUDGE

Presently before the court is Defendants' Motion to Dismiss. Having considered the parties' submissions, the court adopts the following Order.

I. BACKGROUND

Plaintiff Jerald Friedman ("Friedman") brings this putative class action against defendants AARP, Inc., AARP Services Inc., AARP Insurance Plan, UnitedHealth Group, Inc., and United Healthcare Insurance Company (collectively, "Defendants"). (Complaint, ¶¶ 22–30.) The court has already set forth the basic facts of the case in its prior Order, (Dkt. No. 50), which it repeats here in relevant part:

In 2011, Friedman purchased a type of health insurance policy, known as a "Medigap" policy, which is designed to offer extra coverage to Medicare beneficiaries beyond the basic Medicare benefits, including coverage of copays and deductibles that would otherwise be the patient's responsibility. (Id. ¶ 35.) Friedman purchased a Medigap policy that was endorsed by AARP, with UnitedHealth as the insurer. (Id. ¶¶ 22, 37.) All UnitedHealth Medigap policies are endorsed by AARP. (Id. ¶ 37.) For every AARP/UnitedHealth Medigap policy sold, AARP receives a payment of 4.95% of the amount paid by the insured individual. (Id. ¶ 11.)

On behalf of a putative class, Friedman alleges that AARP improperly acts as an unlicensed insurance agent in actively soliciting insurance purchases for Medigap policies on behalf of UnitedHealth. (Id. ¶¶ 11, 52, 55–57, 71–75.) AARP is not a licensed insurance agent in California. (Id. ¶ 11.) Friedman alleges, however, that the 4.95% payment that AARP receives on every AARP/UnitedHealth Medigap policy is an unlawful insurance commission, paid to AARP for its role in "selling" the Medigap policies. (Id. ¶ 51.) Though Defendants' agreements cast this payment as a royalty, paid in exchange for UnitedHealth's use of AARP's intellectual property in marketing and selling its Medigap coverage, Friedman alleges that this characterization of the 4.95% payment is false. (Id. ) Friedman alleges that "while Defendants disclose the existence of a payment in general to AARP which they term a ‘royalty’ paid for the use of AARP's intellectual property, Defendants hide the fact that the cost of AARP Medigap insurance includes a percentage-based commission to AARP that is funded by consumers, in addition to the insurance premium paid to UnitedHealth for coverage." (Id. ¶ 66.)

As a result, Friedman contends that he paid more for his Medigap policy than he would have paid if he had known that 4.95% went to an illegal commission. (Id. ¶¶ 14, 15, 19, 22.) Friedman further alleges that other insurance companies offer comparable plans at lower cost because the premiums for those plans do not include an unlawful 4.95% commission. (Id. ¶ 16.) He contends that this arrangement violates various provisions of the California Insurance Code, and therefore that he has a basis to bring a Unfair Competition Law claim under California Business & Professions Code § 17200 et seq.¹

On the basis of these allegations, Friedman filed a putative class action, asserting claims under the UCL as well as for money had and received and conversion. (See Compl.) Subsequently, Defendants filed a Motion to Dismiss under Rule 12(b)(6). (Dkt. 27.) This court granted the Motion, and dismissed the Complaint with prejudice. (Dkt. 50.) Friedman appealed the dismissal to the Ninth Circuit. (Dkt. 51.) The Ninth Circuit reversed the court's order dismissing the Complaint, and remanded the case to this court so that it could address Defendants' remaining arguments in its Motion to Dismiss regarding the application of the filed-rate doctrine to Friedman's claims. (Dkt. 54.)

II. LEGAL STANDARD

A complaint will survive a motion to dismiss when it contains "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). When considering a Rule 12(b)(6) motion, a court must "accept as true all allegations of material fact and must construe those facts in the light most favorable to the plaintiff." Resnick v. Hayes , 213 F.3d 443, 447 (9th Cir. 2000). Although a complaint need not include "detailed factual allegations," it must offer "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. Conclusory allegations or allegations that are no more than a statement of a legal conclusion "are not entitled to the assumption of truth." Id. at 679, 129 S.Ct. 1937. In other words, a pleading that merely offers "labels and conclusions," a "formulaic recitation of the elements," or "naked assertions" will not be sufficient to state a claim upon which relief can be granted. Id. at 678, 129 S.Ct. 1937 (citations and internal quotation marks omitted).

"When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement of relief." Id. at 679, 129 S.Ct. 1937. Plaintiffs must allege "plausible grounds to infer" that their claims rise "above the speculative level." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. "Determining whether a complaint states a plausible claim for relief" is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal , 556 U.S. at 679, 129 S.Ct. 1937.

III. DISCUSSION

The threshold issue before the court on remand is whether Friedman's claims are barred by a California filed-rate doctrine. Under this doctrine, "rates duly adopted by a regulatory agency are not subject to collateral attack in court." MacKay v. Superior Court , 188 Cal.App.4th 1427, 115 Cal.Rptr.3d 893, 910 (2010). The parties dispute whether a filed-rate doctrine exists under California law and, if so, the whether it applies to bar Friedman's claims.

A. Whether Friedman's Claims Are Barred by a State Filed–Rate Doctrine

As the court noted in its previous order, "there is currently a split of authority on the issue of whether there exists a general state filed rate doctrine in California." (Dkt. 50 at 4 n.2). Defendants argue that a state filed-rate doctrine bars Friedman's claims because he challenges insurance rates approved by a state agency, the California Department of Insurance (DOI). Defendants' key authority in support of a filed-rate doctrine for state insurance rates comes from MacKay v. Superior Court , 188 Cal.App.4th 1427, 115 Cal.Rptr.3d 893 (Ct. App. 2010). In MacKay , the plaintiff alleged that the insurer had not properly considered certain factors in rate-setting, although the rating factors had been duly approved by DOI. Id. at 1436–37, 115 Cal.Rptr.3d 893. The court found that such a challenge was barred by Section 1860.1 of the California Insurance Code, a provision that is not at issue here. Id. at 1432–33, 115 Cal.Rptr.3d 893. Section 1860.1 functions, in essence, as a statutory analog to the filed-rate doctrine, preventing collateral challenges to DOI–approved rates in the courts. See Cal. Ins. Code § 1860.1 (exempting from "any other law of this State ... which does not specifically refer to insurance" any "act done, action taken or agreement made pursuant to the [ratemaking] authority conferred by this chapter.").²

Having found that Section 1860.1 precluded the plaintiff's claims, the MacKay court went on to reason that its holding was consistent with the operation of a state filed-rate doctrine. 188 Cal.App.4th at 1448–49, 115 Cal.Rptr.3d 893. The court observed that "numerous state courts have applied the filed-rate doctrine to approved insurance rates," and indicated that a state filed-rate doctrine could apply to rates approved by DOI. Id. The court also carefully delimited the scope of this prohibition to exclude those cases where "the underlying conduct challenged was not the charging of an approved rate."³ Id. at 1449–50, 115 Cal.Rptr.3d 893.

Here, even assuming arguendo that a state filed-rate doctrine exists in the insurance context, it does not bar Friedman's claims because these claims are more akin to challenges to Defendants' alleged misrepresentations, rather than challenges to the approved rate, or challenges to whether the rate is reasonable in light of the statutorily prescribed loss ratios for Medigap insurance.⁴ The Complaint alleges that "Defendants' misrepresentations and omissions regarding AARP Medigap constitute an unfair, deceptive, and misleading practice" under the UCL. (Compl. ¶ 69). Had Defendants disclosed the fact that the "member contribution amount" included an embedded commission payment to the AARP, Friedman claims that he would have sought out another Medigap policy offering the same services for a lower rate. (Compl. ¶ 19). As the court held in Canon v. Wells Fargo , "the gravamen of the complaint is not the premium rate per se, but the...