Leslie v. Quest Diagnostics, Inc.

MARVIN D. LESLIE, et al., Plaintiffs, v. QUEST DIAGNOSTICS, INC., Defendant.

Civil Action No. 17-1590 (ES) (MAH)

UNITED STATES DISTRICT COURT DISTRICT OF NEW JERSEY

September 25, 2019

Not for Publication

OPINION

SALAS, DISTRICT JUDGE

Before the Court is Defendant Quest Diagnostics, LLC's ("Quest") Motion to Dismiss Plaintiffs' Amended Complaint (D.E. No. 34) ("Motion"). After considering the parties' submissions, the Court reaches its decision without oral argument. Fed. R. Civ. P. 78(b); D.N.J. Civ. R. 78.1(b). After careful review, for the reasons set forth below, the Court GRANTS-in-part and DENIES-in-part the Motion.

I. Background

A. Factual Background

Quest is the leading provider of diagnostic and clinical testing in the United States. (D.E. No. 31, Amended Complaint ("Am. Compl.") ¶ 45). Plaintiffs are nineteen individuals who received laboratory testing services from Quest. (Id. ¶¶ 23-40).¹ At all relevant times, sixteen of the Plaintiffs maintained health insurance and three did not. (Id.). Because Plaintiffs were either un- or under-insured, Quest billed each for laboratory testing services based on "list" or"chargemaster" prices that Quest sets. Plaintiffs allege that these prices are substantially higher than the prices Quest customarily charges to other third-party customers and higher than the actual cost to Quest for the services provided. (Id. ¶¶ 3, 5 & 8-11). Plaintiffs bring this putative class action to challenge Quest's pricing and billing practices for uncovered or partially covered procedures. (See generally id.).

Plaintiffs proceed on two theories in the Amended Complaint: breach of implied contract and violations of the consumer protection laws of Plaintiffs' various home states. As to the contract-based theory,² Plaintiffs allege that Quest maintains two sets of rates: the aforementioned chargemaster rates that it bills to un- or under-insured patients (accounting for approximately 1% of Quest's customers) and negotiated rates that it charges to third-party payers and wholesale clients (accounting for approximately 99% of Quest's customers). (See, e.g., id. ¶¶ 3-5, 8-11, 70 & 74-77). According to Plaintiffs, the chargemaster rates are generally 500% to 1000% of the negotiated rates, and therefore neither represent actual market nor reasonable rates for the services provided. (Id. ¶¶ 377-81). Under Plaintiffs' theory, because Quest never contracted with Plaintiffs to charge these rates, the relationship between Plaintiffs and Quest is governed by a contract implied-in-fact with a missing essential term: price. (Id. ¶¶ 3, 15-16 & 117-27). Plaintiffs allege that because this implied contract lacks an agreement on price, Quest is limited under contract principles to charge only a "reasonable" price, that is, a price which is more similar to the negotiated rates paid by third-party public or private insurers. (Id. ¶¶ 377-81).

Also under their contract theory, Plaintiffs allege in the alternative that their relationship with Quest is governed by a contract implied-in-law, and Quest has been unjustly enriched by overbilling Plaintiffs. (Id. ¶¶ 438 & 443). Relying on both theories, Plaintiffs further allege aclaim for declaratory judgment that Quest's chargemaster prices are unreasonable and ask the Court to establish the reasonable price for Quest's services and award restitution or disgorgement for the price differential. (Id. ¶¶ 429-32 & 442-43).

Plaintiffs' second theory asserts violations of state consumer protection statutes. Under this theory, Plaintiffs allege that Quest has engaged in an unconscionable, unfair commercial practice; a deception, suppression, or omission; and/or fraud by billing Plaintiffs based on the chargemaster prices and then harassing Plaintiffs to collect the debt accrued for the billed laboratory services. (Id. ¶¶ 447-48, 455-56, 464-65, 472, 478-79, 485-86, 492-94, 501-02, 509-10, 515-16, 522-23 & 532-33). Plaintiffs further allege they paid the rate charged by Quest "under duress," refused to pay the chargemaster rate, or paid the bill unaware they had paid a rate which was much greater than the third-party payor rate. (Id. ¶¶ 450, 458, 467, 474, 481, 488, 496, 504, 512, 518, 526 & 535). Based on these practices, Plaintiffs allege violations of consumer fraud statutes in eleven states.³

In support of these allegations, Plaintiffs provide examples of the differences between the chargemaster prices billed to Plaintiffs for uncovered laboratory testing and the rates paid by third-party public and private insurers. Plaintiffs further allege that the chargemaster prices are "unreasonable" and do not reflect market rates or actual costs for the services provided. (Id.¶¶ 11 & 54-74). Plaintiffs propose to calculate damages for this alleged overcharging by computing thedifferences between "reasonable" rates and rates paid by members of the putative class. (Id. ¶¶ 89-127).

B. Procedural Background

Plaintiffs initially filed their complaint (D.E. No. 1, Complaint) on March 8, 2017. In the original complaint, Plaintiffs asserted claims under the consumer protection statutes of nine states and common law claims for breach of contract, unjust enrichment, and fraud. (See D.E. No. 29, Opinion Dismissing Plaintiffs' Complaint ("Opinion") at 3). Quest moved to dismiss (D.E. No. 11), and the Court granted the motion on March 29, 2018 with leave to replead.

In the Opinion, the Court first found that Plaintiffs failed to state a claim for their state-law claims under both a "differential or high pricing" theory and a "deceptive billing" theory. (Opinion at 6-11). As to the first theory, the Court found that allegations of differential or high pricing, by themselves, did not constitute unfair or deceptive trade practices. (Id. at 6-7). The Court further found that Plaintiffs' "deceptive billing" theory failed because the allegations of Quest's failure to advise patients of lower third-party negotiated rates were insufficient to state a claim under the consumer protection statutes, and Plaintiffs did not allege any misrepresentation related to Quest's billing practices. (Id. at 8-11). Relying on this analysis, the Court further dismissed Plaintiffs' common law fraud claim. (Id. at 11).

As to the contract claims, the Court found that Plaintiffs had failed to allege any contract—implied or otherwise—which would entitle Plaintiffs to be billed at "the reasonable fair market value of Quest's services." (Id. at 11-12). The Court further found that Plaintiffs had failed to state a claim for quantum meruit because, assuming arguendo that an implied contract governed the relationship between the parties, Quest—not Plaintiffs—was the performing party that would be entitled to bring such a claim. (Id.). The Court further noted that such a claim also failedbecause a claim of unreasonableness based only on differences between chargemaster and negotiated rates was insufficient. (Id. at 11-14). Finally, because Plaintiffs' unjust enrichment claim was virtually identical to their quantum meruit claim, the Court dismissed that claim as well. (Id. at 14).

Plaintiffs subsequently filed the operative Amended Complaint. The Amended Complaint contains additional named plaintiffs who bring their claims on behalf of "all Quest patients in the United States who, without any express contract with Quest that establishes the amount of fees to be paid to Quest, were charged fees for clinical lab testing services performed by Quest that were in excess of the reasonable market rates for the same services." (Am. Compl. ¶ 2). Asserting the two theories described above, the Amended Complaint contains new allegations regarding Quest's business structure and finances and the differential pricing it charges to third-party payers and Plaintiffs. (Id.). Quest once again moved to dismiss. (D.E. No. 34).

In its Memorandum of Law in Support of the Motion, Quest principally argues that, despite the opportunity to amend, Plaintiffs fail to correct the deficiencies of the original complaint requiring dismissal once again—this time with prejudice. (D.E. No. 34-1 ("Def. Mov. Br.") at 1). Specifically, Quest argues that Plaintiffs fail to state a claim for breach of implied contract because Quest never agreed to charge Plaintiffs the negotiated third-party rates, nor did it "omit" the price term such that the term should be supplied by the Court. (Id. at 4-9). Quest further argues that Plaintiffs fail to demonstrate that the chargemaster rates are unreasonable. (Id. at 10). According to Quest, these defects require dismissal of Plaintiffs' implied contract claims. (Id. at 10-11).

As to the state consumer protection claims, Quest argues that little has changed between Plaintiffs' initial complaint and the operative Amended Complaint, and, as a result, the consumer protection claims fail for the same reasons articulated by the Court in its March 29, 2018 Opinion.(Id. at 12-13). Specifically, Quest argues that Plaintiffs improperly request that the Court set "reasonable" rates for the services performed by Quest when such rate setting, if appropriate at all, is properly performed by the legislature or regulators. (Id. at 14-19). Quest also argues that the "learned professional rule" forecloses certain consumer fraud claims, and that Plaintiffs' claim for deceptive billing practices fails for the same reasons that claim was previously dismissed by the Court. (Id. at 20-23).

Plaintiffs dedicate much of their opposition brief to Quest's arguments for dismissal of the implied contract claims. In sum, Plaintiffs argue that they sufficiently allege (i) that the parties never agreed on a price for the provided laboratory services; (ii) Plaintiffs are thus only required to pay a "reasonable market rate"; (iii) Quest's chargemaster rates are "unreasonable"; and (iv) Plaintiffs are entitled to the difference between the "reasonable market rate" and the "unreasonable" billed amount. (Pl. Opp. Br. at 6-25). Separately, Plaintiffs argue that t...