Fraser v. Team Health Holdings, Inc.

Background

Sia Fraser, Tricia Bakonyi, Gabrielle DiBella, and Katja Fiume sued Team Health Holdings, Inc., AmeriTeam Services, LLC, TeamHealth, Inc. n/k/a Team Health LLC, and HCFS Health Care Financial Services, LLC. They alleged that the defendants and other entities formed an association-in-fact enterprise—an informal group treated as an enterprise under the Racketeer Influenced and Corrupt Organizations Act (RICO)—to avoid restrictions on the corporate practice of medicine and inflate charges to patients.

The plaintiffs alleged that HCFS set the prices used by provider groups associated with the TeamHealth organization and that defendants billed uninsured and out-of-network patients using inflated chargemaster rates. Fraser alleged that she received a $1,082 bill and was paying it under a payment plan. Bakonyi received a $1,370 bill, DiBella received a $554 bill, and Fiume received a $715 bill; the latter three had not paid their bills and alleged concern about possible harm to their credit.

The First Amended Complaint asserted a RICO claim and state-law claims, including claims under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA). Defendants moved to dismiss. The court also considered whether to transfer the case under 28 U.S.C. § 1404(a).

Transfer

The court retained the case. It concluded that the action could have been brought in either the Southern District of California or the Eastern District of Tennessee, but the relevant convenience and fairness factors did not strongly favor either alternative forum. The court found that venue was proper in the Northern District of California because of the plaintiffs’ RICO claim, although the connection to that district was thin.

Article III Standing

Article III standing is the constitutional requirement that a plaintiff show a concrete injury connected to the defendant’s conduct and likely to be addressed by a favorable court decision. Defendants made a factual challenge to the standing of Bakonyi, DiBella, and Fiume. The court considered a declaration stating that none of the plaintiffs had been reported to a credit agency; that HCFS was not seeking payment from Bakonyi; that Fiume was not liable for her bill because it qualified for payment under California’s AB75 program; and that DiBella’s insurer might pay her bill.

The court held that Bakonyi, DiBella, and Fiume had not established Article III standing to pursue their state-law claims. It therefore granted defendants’ motion to dismiss on that basis and dismissed those plaintiffs’ state-law claims for lack of subject-matter jurisdiction. The court did not need to decide whether those plaintiffs had standing to pursue the RICO claim because it found that Fraser had standing to bring the RICO and California state-law claims.

RICO Claim

The court held that the complaint did not adequately plead the RICO claim. A RICO claim under 18 U.S.C. § 1962(c) requires allegations of a defendant’s participation in an enterprise, through a pattern of racketeering activity, that proximately caused harm. Because the alleged racketeering acts were mail and wire fraud, Federal Rule of Civil Procedure 9(b) required the plaintiffs to plead the circumstances of the alleged fraud with particularity, including the who, what, when, where, and how.

The court found insufficient allegations concerning both the alleged enterprise’s common purpose and the defendants’ conduct of the enterprise’s affairs. In the court’s view, the complaint mainly described the defendants’ ordinary business roles and relationships and did not plausibly show that they were conducting a distinct enterprise rather than their own affairs.

The court also found that the alleged fraud was not pleaded with enough specificity. General allegations about chargemaster rates did not explain how the specific charges were set, what the plaintiffs should have been charged, or why the billed prices were not reasonable approximations of the services’ value. The court further stated that disagreement over the reasonable cost of medical services did not by itself establish that the bills contained a misrepresentation.

California Claims

The court found that Fraser had statutory standing under the UCL and CLRA because she alleged that she received a bill stating that $1,082 was due and that she was making payments under a payment plan. However, it held that the fraud-based UCL and CLRA claims did not satisfy Rule 9(b) because the complaint did not adequately allege how Fraser’s rate was inflated, what the service should have cost, or what role each defendant played in setting the rate.

The court also dismissed the UCL claim to the extent it relied on an alleged violation of the CLRA because the CLRA claim failed. It rejected the theory that basic principles of equity and quantum meruit—a legal doctrine concerning payment for the reasonable value of services—could supply the required basis for the UCL’s unfairness theory because those principles were legal doctrines rather than a legislatively declared policy.

Disposition

The court retained the case and granted defendants’ motion to dismiss with leave to amend. The order states that the plaintiffs could file an amended complaint addressing the identified deficiencies within 21 days.