Ryan S. v. UnitedHealth Grp., Inc.

98 F.4th 965

RYAN S., individually and on behalf of all others similarly situated, Plaintiff-Appellant, v. UNITEDHEALTH GROUP, INC., a Delaware corporation;United Healthcare Services, Inc., a Minnesota corporation;United Healthcare Insurance Company, a Connecticut corporation;UHC of California, a California corporation; United Healthcare Services, LLC,a Delaware limited liability company; United Behavioral Health, Inc.,a California corporation; OptumInsight, Inc., a Delaware corporation;Optum Services, Inc., a Delaware corporation; Optum, Inc.,a Delaware corporation, Defendants-Appellees.

No.22-55761

United States Court of Appeals, Ninth Circuit

Argued and Submitted October 19, 2023 Pasadena, California

Filed April 11, 2024

Appeal from the United States District Court for the Central District of California, James V. Selna, District Judge, Presiding, D.C. No. 8:19-cv-01363-JVS-KES

Elizabeth Hopkins (argued) and Lisa S. Kantor, Kantor & Kantor LLP, Northridge, California; Richard T. Collins and Damon D. Eisenbrey, Arnall Golden Gregory LLP, Washington, D.C.; for Plaintiff-Appellant.

April N. Ross (argued), Crowell & Moring LLP, Washington, D.C.; Jennifer S. Romano, Andrew Holmer, and Kenneth R. Taketa, Crowell & Moring LLP, Los Angeles, California; Mana E. Lombardo, Lombardo Law PC, Encino, California; for Defendants-Appellees.

Before: Richard R. Clifton and Gabriel P. Sanchez, Circuit Judges, and Edward R. Korman,^* District Judge.

OPINION

CLIFTON, Circuit Judge:

Plaintiff-Appellant Ryan S. brought a putative class action under the Employee Retirement Income Security Act of 1974 ("ERISA") against UnitedHealth Group, Inc. and its subsidiaries (collectively "UnitedHealthcare"). He alleges that UnitedHealthcare applies a more stringent review process to benefits claims for outpatient, out-of-network mental health and substance use disorder ("MH/SUD") treatment than to otherwise comparable medical/surgical treatment. Ryan S. asserts that by doing so, UnitedHealthcare has violated the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 ("Parity Act"), 29 U.S.C. § 1185a, in the process also breaching its fiduciary duty and violating the terms of his plan.

UnitedHealthcare moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). The district court granted the motion, concluding that all of Ryan S.'s claims were insufficient as a matter of law. It based the dismissal primarily on its conclusions that Ryan S. had (1) failed to allege that his claims had been "categorically" denied and (2) insufficiently identified analogous medical/surgical claims that he had personally submitted and UnitedHealthcare had processed more favorably.

We conclude that Ryan S. adequately stated a claim for a violation of the Parity Act. An ERISA plan can violate the Parity Act in different ways: it can explicitly exclude some form of treatment for MH/SUD issues that is offered for comparable medical/surgical issues; it can apply a facially neutral plan term in an unequal way between MH/SUD and medical/surgical benefits; or it can apply a more stringent internal process to MH/SUD claims than to medical/surgical claims. In this case, Ryan S. alleges a violation of the third type, claiming that UnitedHealthcare applied a more restrictive review process to his outpatient, out-of-network MH/SUD claims. A plaintiff presenting that type of contention may be able to allege a plausible claim without having to allege a categorical practice or differential treatment for his or her medical/surgical claims. It is enough for such a plaintiff to allege the existence of a procedure used in assessing MH/SUD benefit claims that is more restrictive than those used in assessing medical/surgical claims under the same classification, as long as the allegation is adequately pled.

By alleging a systematic denial of those MH/SUD benefit claims and citing a California state agency report that had concluded that certain UnitedHealthcare entities, including Defendant UnitedHealthcare of California ("UHC"), were applying a more stringent review process to such claims, Ryan S. plausibly alleges that UnitedHealthcare was applying an improper internal process in violation of the Parity Act. The allegations might ultimately not be proven, but they are sufficient at the pleading stage.

We reverse the dismissal of Ryan S.'s claims based on the Parity Act and for breach of fiduciary duty. As Ryan S. fails to identify any specific plan terms that the alleged practices would violate, we affirm the dismissal of his claims based on a violation of the terms of his plan. We thus reverse the judgment in part, affirm it in part, and remand the matter for further proceedings.

I. Background

Ryan S. is a California resident and a beneficiary of an ERISA group health plan insured, managed, and administered by UnitedHealthcare. Ryan S.'s plan covers outpatient, out-of-network MH/SUD treatment at 70% of covered charges, and 100% once the out-of-pocket maximum is met. Over the course of many months between 2017 and 2019, Ryan S. completed two different outpatient, out-of-network substance use disorder programs. UnitedHealthcare did not cover most of the costs of the programs. Ryan S. was variously informed that his claims were denied because "your plan does not cover the services you received," "no documentation was submitted," and "the information submitted does not contain sufficient detail." Overall, Ryan S. was left personally responsible for hundreds of thousands of dollars in charges.

Ryan S. filed a putative class action against UnitedHealth Group, Inc. and eight of its wholly owned subsidiaries on July 11, 2019. That complaint was subsequently amended. The operative Third Amended Complaint ("TAC") alleges that UnitedHealthcare violated three of ERISA's requirements: (1) the Parity Act, codified at 29 U.S.C. § 1185a; (2) the fiduciary duty of loyalty, described in 29 U.S.C. § 1104; and (3) the requirement under § 1104 to follow the contractual terms of a beneficiary's plan. The TAC seeks various forms of relief on behalf of the putative class, including a declaration that UnitedHealthcare's practices violated ERISA, an injunction requiring Defendants to re-evaluate all claims for substance use disorder and related laboratory services, and disgorgement of profits.

In support of these allegations, the TAC does not rely solely on Ryan S.'s personal experiences with denied claims. It also cites a 2018 report by the California Department of Managed Health Care, which concluded that Defendant UHC violated the Parity Act by imposing a more stringent review process on MH/SUD treatment claims.¹ The report based this conclusion on the existence of an algorithm, applied solely to MH/SUD treatment programs, which assessed patients' progress and referred cases for additional review, leading to the potential denial of benefits if results were deemed insufficient.

The district court initially dismissed the TAC under Rule 12(b)(1) for lack of standing. On appeal, our court held that Ryan S. had standing to pursue claims based on three alleged practices: (1) refusing to cover outpatient MH/SUD treatment, (2) refusing to pay for certain "auxiliary treatments," and (3) refusing to cover clinical laboratory claims for MH/SUD patients. Ryan S. v. UnitedHealth Grp., Inc., 2022 WL 883743, at *2-4 (9th Cir. 2022). On remand, UnitedHealthcare renewed its motion to dismiss under Rule 12(b)(6) for failure to state a claim. The district court granted the motion, and this appeal followed.

II. Discussion

We review de novo the grant of a motion to dismiss under Rule 12(b)(6). Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885, 889 (9th Cir. 2021). A court conducting such an inquiry "accept[s] the factual allegations of the complaint as true and construe[s] them in the light most favorable to the plaintiff." Id. (citation omitted). The motion should be denied if the claim is plausible on its face, that is, if "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, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).

Ryan S. alleges that UnitedHealthcare maintains a system that subjects MH/SUD treatment claims to a more stringent review process than other medical/surgical claims. He argues that this practice violates three of the duties that ERISA imposes on administrators: (1) the requirement that administrators treat MH/SUD and medical/surgical claims equally, (2) the fiduciary duty of loyalty, and (3) the mandate to follow all plan terms. Based on each of these three alleged violations, Ryan S. seeks relief under 29 U.S.C. § 1132(a)(3), which allows a plaintiff to bring a claim based on "any act or practice which violates" ERISA.²

A. Parity Act

The Parity Act requires that any limitations on "mental health or substance use disorder benefits" in an ERISA plan be "no more restrictive than the predominant treatment limitations applied to substantially all [covered] medical and surgical benefits." 29 U.S.C. § 1185(a)(3)(A)(ii). Thus, to succeed on a claim under the Parity Act, a plaintiff must show that an ERISA plan that offers both medical/surgical benefits and MH/SUD benefits imposed a "more restrictive limitation on [MH/SUD] treatment than limitations on treatment for medical and surgical issues." Stone v. UnitedHealthcare Ins. Co., 979 F.3d 770, 774 (9th Cir. 2020). The district court held that Ryan S. did not plausibly allege the existence of such a limitation. We disagree.

We appreciate the challenge posed here for the district court. We have previously noted that although the Parity Act's "language is quite clear," it has "left some room for uncertainty or ambiguity regarding its application to specific ERISA plan terms and situations." Danny P. v....