San Francisco Ladies’ Protection and Relief Society v. RPM Billing, LLC, et al.

Background

San Francisco Ladies’ Protection and Relief Society, doing business as Heritage on the Marina, sued RPM Billing, LLC, Kovo+Holdings, LLC, KovoRCM, and unnamed defendants. Heritage alleges that it contracted with the defendants to act as its exclusive billing agent for reimbursement claims concerning skilled nursing care provided to Medicare beneficiaries. It alleges that approximately $400,000 in expected reimbursement for services provided in 2022 and early 2023 remains unpaid.

Heritage alleges that it repeatedly told the defendants about unpaid claims and that the defendants failed to submit or resubmit them. It also alleges that representatives of the defendants repeatedly assured Heritage between January and July 2023 that the claims had been or would be submitted and paid, even though Heritage alleges that the claims were not properly submitted and remained unpaid.

Heritage asserted claims for breach of contract, breach of the implied duty of good faith and fair dealing, fraudulent misrepresentation, negligent misrepresentation, breach of fiduciary duty, and violations of California’s Unfair Competition Law and False Advertising Law. The defendants moved to dismiss the second through sixth claims, arguing that the fraud-based claims did not meet the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), and that the claims were barred by the economic-loss rule or duplicated the contract claim.

Court’s Analysis

Fraud and Misrepresentation Claims

The court held that the fraudulent misrepresentation, negligent misrepresentation, and Unfair Competition Law and False Advertising Law claims were pleaded with enough detail to satisfy Rule 9(b). The complaint identified specific statements by Lainie Brown, Melissa Kelly, and Jessica Metevier about the status and expected payment of the claims. The court concluded that the later statements, including assurances in June and July 2023 that the claims had been properly submitted, were plausibly alleged to be misleading because the claims remained unpaid.

The court also rejected the defendants’ argument that Heritage had to identify the precise number of successfully processed claims or explain every complicating detail about the unpaid claims. The court stated that those issues were better addressed at summary judgment. Because the Unfair Competition Law and False Advertising Law claims were derivative of the fraudulent misrepresentation claim, the court applied the same reasoning to them.

Implied Duty of Good Faith and Fair Dealing

The court dismissed Count II, the claim for breach of the implied duty of good faith and fair dealing, with leave to amend. The complaint did not identify a frustration of the agreement’s purpose separate from the alleged breach of contract. The court stated that Heritage had not explained how the defendants’ alleged false assurances frustrated the agreement independently of the alleged contract breach.

Breach of Fiduciary Duty

The court dismissed Count V, the breach-of-fiduciary-duty claim, with leave to amend. It concluded that Heritage had not plausibly alleged that the defendants knowingly undertook to act for Heritage’s benefit as fiduciaries. The alleged agreement instead described a mutually beneficial contractual relationship in which the defendants would process claims in exchange for payment.

The court also rejected Heritage’s argument that the parties’ relationship was an agency relationship that created fiduciary duties. The complaint did not allege facts showing that the defendants had authority to act for Heritage in dealing with third parties or had the required discretion to carry out Heritage’s purposes.

Economic-Loss Rule

The court held that the economic-loss rule did not bar the fraudulent misrepresentation, negligent misrepresentation, or related Unfair Competition Law and False Advertising Law claims at this stage. Heritage alleged that the defendants made misleading statements intended to conceal their failure to perform contractual obligations and that Heritage relied on those statements by not promptly hiring another billing service or taking other steps to ensure timely claim submission. The court concluded that these allegations described harm beyond a broken contractual promise.

Disposition

The court granted in part and denied in part the motion to dismiss. Counts II and V were dismissed with leave to amend. The court denied the motion as to the Rule 9(b) challenge and the economic-loss argument concerning the fraud-based claims. Any amended complaint was due by December 16, 2025. If Heritage did not file one by that date, the case would proceed on the initial complaint. Judge Rita F. Lin signed the order.