Stanford Health Care v. Trustmark Services Company

Background

Stanford Health Care brought a diversity action against Trustmark and The Chefs’ Warehouse, Inc. Stanford alleged that it provided emergency medical services to beneficiaries of a health plan sponsored, administered, or funded by the defendants, but that the defendants did not pay the full amounts Stanford billed. Stanford’s Second Amended Complaint asserted three claims against each defendant: breach of implied contract, quantum meruit, and violation of California’s Unfair Competition Law (UCL).

Trustmark moved to dismiss under Rules 12(b)(1) and 12(b)(6). Rule 12(b)(1) concerns subject-matter jurisdiction, while Rule 12(b)(6) concerns whether a complaint adequately states a legal claim. The Chefs’ Warehouse moved under Rule 12(b)(6). The court stated that the motions could be decided without oral argument and vacated the scheduled hearings.

Breach of Implied Contract

Stanford alleged that the defendants created an implied contract by requesting emergency medical care, directing plan members to seek care at the nearest emergency hospital, verifying and authorizing the services, failing to arrange transfers, and making only partial payments.

The court held that these allegations still did not adequately show an implied contract. Instructions to plan members to seek emergency care did not show an agreement between the defendants and Stanford. Verification and authorization of services, standing alone, did not establish an implied contract. The partial payments undermined Stanford’s allegation that the parties agreed on a price, and Stanford’s existing legal obligation to provide emergency medical care undermined the allegation that the defendants provided consideration. The breach-of-contract claim was dismissed.

Trustmark separately argued that it was not a proper defendant because it was only a claims processor and did not insure benefits or retain insurance risk. The court treated that argument as one under Rule 12(b)(6), rather than Rule 12(b)(1), because Trustmark did not dispute the existence of diversity jurisdiction. The court concluded that Trustmark had presented a strong argument but that the issue raised a factual question that should not be resolved on a motion to dismiss.

Quantum Meruit

Quantum meruit is a claim seeking payment for the reasonable value of services provided. Stanford alleged that its services benefited the defendants by helping them fulfill promises that plan members would receive coverage for medically necessary care and would be protected from most of the financial responsibility.

The court found that the complaint did not adequately explain what promises the defendants made to plan members or whether those members would otherwise have been responsible for most of the emergency-care costs. Stanford also did not adequately allege that the defendants specifically requested the services. The quantum meruit claim was therefore dismissed.

Unfair Competition Law Claim

Stanford’s new UCL claim alleged that the defendants acted unlawfully by paying less than the reasonable value of the emergency services or less than the rate described in the patients’ coverage documents. Stanford alleged that the lower rate, determined by ELAP Services, LLC, violated California law.

The Chefs’ Warehouse argued that the claim was preempted by the Employee Retirement Income Security Act of 1974 (ERISA), a federal law governing employee benefit plans. The court rejected that argument. It relied on Ninth Circuit decisions holding that independent state-law claims by third-party healthcare providers seeking payment generally fall outside ERISA’s preemption provision. The court also noted that Stanford was not a plan participant or beneficiary and was not asserting a claim on behalf of one.

The defendants separately argued that the California laws cited by Stanford did not apply to The Chefs’ Warehouse and that Stanford sought damages, which are unavailable under the UCL. The court stated that the first issue appeared to involve factual questions better addressed later. It agreed, however, that damages are not an available UCL remedy. Although restitution can be available under the UCL, the court held that restitution did not fit the allegations because Stanford was not seeking money that the defendants had obtained from Stanford. Stanford instead sought the defendants’ alleged ill-gotten gains. The UCL claim was dismissed.

Disposition

The court concluded that Stanford had again failed to state any claim for which relief could be granted. Both motions to dismiss were granted. Leave to amend was granted only as to the UCL claim, and only to the extent Stanford could attempt to seek a remedy permitted under the UCL. Any amended pleading had to be filed within 10 days of the order. The opinion does not state that the dismissals were with or without prejudice.