Josef K. v. Cal. Physicians' Serv.

JOSEF K., ET AL., Plaintiffs, v. CALIFORNIA PHYSICIANS' SERVICE, ET AL., Defendants.

CASE NO. 18-cv-06385-YGR

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

June 3, 2019

ORDER GRANTING IN PART AND DENYING IN PART MAXIMUS' MOTION TO DISMISS FIRST AMENDED COMPLAINT

Re: Dkt. No. 51

This is the second round of briefing on the complaint filed by plaintiffs Josef K. and E.K. against defendant Maximus Federal Services, Inc.¹

The First Amended Complaint ("FAC") alleges three causes of action. (Dkt. No. 46.) First, plaintiffs re-allege breach of the Employee Retirement Income Security Act of 1974 ("ERISA") under 29 U.S.C. section 1132(a)(1)(B), against defendants California Physicians' Service dba Blue Shield of California, Trinet Group, Inc., and Trinet Blue Shield PPO 500 Group #977103 Plan (the "Plan," and collectively, "Blue Shield") on the ground that the treatments at issue were medically necessary. (FAC ¶¶ 68-72.) Second, plaintiffs re-allege a cause of action against Maximus for intentional interference with contract arising out of Maximus' review of Blue Shield's denial of plaintiffs' claim. (FAC ¶¶ 73-94.) Third, plaintiffs allege a new cause of action against Maximus for breach of fiduciary duty pursuant to 29 U.S.C section 1132(a)(3). (FAC ¶¶ 95-109.)

Maximus again moves to dismiss the complaint, arguing that (1) plaintiffs' intentional interference with contract claim is preempted by ERISA, and (2) plaintiffs' breach of fiduciary duty claim must be dismissed because Maximus is not a fiduciary, nor is the requested equitable relief available under the statute. (Dkt. No. 51 ("Motion").) Having carefully considered thepleadings and the arguments in support of and in opposition to the motion, and for the reasons set forth herein, the motion to dismiss is GRANTED IN PART AND DENIED IN PART.

I. BACKGROUND

The FAC alleges as follows:

During the relevant period, plaintiff Josef K. participated in the Plan, an insurance plan that guaranteed coverage for "medically necessary" health care treatments for Plan participants and their beneficiaries. (FAC ¶¶ 7, 12-13.) Under the Plan, mental health claims were administered by Blue Shield and/or a contracted third-party administrator. (Id. ¶ 8.)

Plaintiff E.K. is plaintiff Josef K.'s daughter and was a Plan beneficiary. (Id. ¶ 11.) The FAC re-states the allegations in the initial complaint regarding E.K.'s difficult medical history. (Id. ¶¶ 21-31.) After E.K. received treatment at two mental health treatment programs, plaintiffs filed claims with defendants for mental health benefits under the Plan. (Id. ¶¶ 21-31.) The Plan, allegedly by and through Blue Shield and/or its contracted third-party administrator, denied plaintiffs' claims, as well as their subsequent appeal. (Id. ¶ 34.) As a final appeal, plaintiffs requested an independent medical review ("IMR") of the claim denials to determine whether E.K.'s treatment was "medically necessary." (Id. ¶¶ 37-38.) Maximus was selected to perform the IMR and ultimately concluded that E.K.'s treatment was not medically necessary, upholding Blue Shield's denial of coverage. (Id. ¶¶ 39, 57-58.) The outcome of the IMR was non-appealable and binding on Blue Shield. (Id. ¶ 41.)

Plaintiffs allege that, pursuant to California Health and Safety Code sections 1374.32 and 1374.33 and California Insurance Code sections 10169.2 and 10169.3, which govern the conduct of IMR organizations, Maximus had a duty to ensure that the professionals retained to review E.K.'s claim were "appropriately credentialed and privileged," and "qualified to render recommendations." (Id. ¶¶ 79-81, 84, 87.) Plaintiffs further allege that Maximus had a duty under these provisions of state law to "consider E.K.'s specific medical needs" and "make a reasonable effort to obtain and review all pertinent medical records." (Id. ¶¶ 84, 87.) The FAC alleges that Maximus breached its duties under the state statutes by performing a biased and incomplete review of E.K.'s claim. (Id. ¶¶ 65, 85.) Specifically, the FAC details Maximus' alleged failure toaddress facts and materials provided by E.K.'s parents and treatment providers, and its alleged mischaracterization of E.K.'s condition and medical history in its final written report. (Id. ¶¶ 59-64.) Plaintiffs allege that but for Maximus' insufficient review, and consequently, its determination to uphold the claim denial, Blue Shield would have covered E.K.'s treatment. (Id. ¶ 65.)

II. LEGAL STANDARD

Pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief may be granted. Dismissal for failure to state a claim under Rule 12(b)(6) is proper if there is a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)). The complaint must plead "enough facts to state a claim [for] relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). If the facts alleged do not support a reasonable inference of liability, stronger than a mere possibility, the claim must be dismissed. Id. at 678-79; see also In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (stating that a court is not required to accept as true "allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences").

III. DISCUSSION

A. Intentional Interference with Contract

In the FAC, plaintiffs re-assert their claim against Maximus for intentional interference with contract. This time, according to plaintiffs, the interference with contract claim is "grounded upon" Maximus' alleged violations of California Health and Safety Code sections 1374.32 and 1374.33 and California Insurance Code sections 10169.2 and 10169.3, which govern the conduct of IMR organizations. (Dkt. No. 52 ("Opp."), at 10.)

As this Court noted in its prior order granting Maximus' motion to dismiss, ERISA, whichcomprehensively regulates employee welfare benefit plans, includes two preemption doctrines that may overcome state law claims for relief. See Fossen v. Blue Cross & Blue Shield of Mon., Inc., 660 F.3d 1102, 1107 (9th Cir. 2011). The Court must therefore consider, once again, whether plaintiffs' interference with contract claim is defeated by one of ERISA's two preemption doctrines: (1) conflict preemption under 29 U.S.C. section 1144(a), or (2) complete preemption under 29 U.S.C. section 1132(a). The Court considers each doctrine in turn.

1. Conflict Preemption

Under the doctrine of conflict preemption, ERISA supersedes state laws "insofar as they may now or hereafter relate to any employee benefit plan" described in the ERISA statute. 29 U.S.C. § 1144(a); Marin Gen. Hosp. v. Modesto & Empire Traction Co., 581 F.3d 941, 945 (9th Cir. 2009) (question of whether a law or claim "relates to" an ERISA plan is the appropriate test for conflict preemption). A state law claim "relates to" an ERISA plan if it has either a "reference to" or "connection with" such a plan. Paulsen v. CNF Inc., 559 F.3d 1061, 1081-82 (9th Cir. 2009) (quoting Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 139 (1990)). "Stated another way, where 'the existence of [an ERISA] plan is a critical factor in establishing liability' under a state cause of action, the state law claim is preempted." Wise v. Verizon Communications, Inc., 600 F.3d 1180, 1190 (9th Cir. 2010) (alteration in original) (citing Ingersoll-Rand Co., 498 U.S. at 136, 139-40).

In its prior order, this Court found that plaintiffs' interference with contract claim was preempted because it was "inextricably tied to the denial of benefits under the ERISA plan," which was the basis for plaintiffs' ERISA claim against Blue Shield. (Dkt. No. 44, at 4.) Plaintiffs argued that the claim was unrelated to ERISA because it was grounded in alleged violations of California Health and Safety Code section 1374.72 and California Insurance Code section 10169.2, notwithstanding that the complaint did not even mention these state laws. The Court rejected this argument, finding that the existence of plaintiffs' ERISA plan was a "critical factor in establishing liability" under the interference of contract claim, and thus, the claim was preempted. (Id., at 5 (quoting Wise, 600 F.3d at 1190).)

The FAC adds several allegations in support of plaintiffs' interference with contract claim.Most notably, the FAC alleges that Maximus breached its duties under the California Health and Safety Code and California Insurance Code by performing a biased and incomplete review of E.K.'s claim, which ultimately interfered with Blue Shield's contractual obligations to plaintiffs. (FAC ¶¶ 79-81, 84, 87.) Plaintiffs assert that their interference with contract claim is "grounded upon" these state laws, which do not "act immediately or exclusively on ERISA plans," and to which "the existence of an ERISA Plan is not essential." (Opp., at 10.) Thus, plaintiffs argue, their interference with contract claim does not "relate to" ERISA and is not preempted. (Id.) Maximus counters that the interference with contract claim in the FAC suffers from the same deficiencies as it did in the initial complaint, and therefore is similarly preempted. (Motion, at 8-9.)

The Court finds plaintiffs' interference with contract claim remains intertwined with defendants' denial of benefits under plaintiffs' ERISA plan. "[A] state law may 'relate to' a benefit plan, and thereby be pre-empted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Ingersoll-Rand, 498 U.S. at 139 (citing Pilot Life v....