Stanford Health Care v. Chefs Warehouse, Inc., Welfare Benefit Plan

Background

Stanford Health Care, a public benefit corporation that provides medical services, sued The Chef’s Warehouse, Inc., Welfare Benefit Plan and Trustmark Health Benefits, Inc. Stanford Health Care alleged that it provided non-emergency hospital services to six patients enrolled in the defendants’ preferred-provider-organization or point-of-sale commercial health plans. Stanford Health Care had no contract with the defendants to provide those services, although the defendants authorized them. The defendants paid only part of Stanford Health Care’s bills, leaving an alleged balance of $453,916.01. Stanford Health Care alleged that the defendants used a third-party entity, ELAP Services, LLC, to determine payment amounts rather than paying the amounts required by the patients’ Evidence of Coverage documents.

The First Amended Complaint asserted two claims: an “unlawful” claim under California’s Unfair Competition Law (UCL), based on California Code of Regulations, title 28, section 1300.71(a)(3)(C), and a claim for an open book account. The defendants moved to dismiss both claims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not allege a legally sufficient claim.

UCL Claim

The defendants argued that the UCL claim was preempted by the Employee Retirement Income Security Act (ERISA), that the cited California regulation did not apply to them, and that Stanford Health Care lacked standing to seek restitution because it had not transferred money or property to the defendants.

The court stated that UCL claims brought by medical providers against insurers generally are not preempted by ERISA. But it could not determine whether this particular claim was preempted because the complaint did not clearly explain the claim’s legal basis. The alleged violation of section 1300.71(a)(3)(C) appeared to require substantial interpretation of the patients’ plan terms, including the allowable claim limit for a nonpreferred provider.

The court rejected the defendants’ argument about a different California Health and Safety Code provision because the First Amended Complaint relied on title 28 of the California Code of Regulations instead. The court found stronger the argument that the complaint did not allege facts supporting restitution. Under the UCL, restitution is available for money or property unlawfully obtained from the plaintiff. The court found that Stanford Health Care’s allegations sought the value of the services it expected to receive, which indicated a claim for damages rather than restitution.

The court also found that the complaint did not allege the specific plan terms and amounts showing what the defendants were required to pay. The allegation that a third-party decision maker determined the payments, by itself, did not support an inference that the payments were below the amounts required by the Evidence of Coverage documents. The court dismissed the UCL claim because Stanford Health Care had not adequately alleged a violation of section 1300.71(a)(3)(C) or entitlement to restitution.

Open Book Account Claim

An open book account is a detailed, reasonably permanent record of transactions between a creditor and debtor arising from a contract or fiduciary relationship. The court found that the First Amended Complaint did not identify the required principal record of the transactions. It did not explain how the spreadsheet attached to the complaint was a contemporaneous detailed record of the parties’ debits and credits, and the court noted that the “Underpaid” column suggested the spreadsheet may have been created for litigation.

The court also found no sufficient allegation of an agreement between the parties to document their transactions through an open book account. It dismissed the open book account claim because the complaint did not allege the necessary facts and granted leave to amend.

The court further stated that, if Stanford Health Care intended to use the open book account claim to recover unpaid amounts under the patients’ plans, the claim would likely be preempted by ERISA. The court nevertheless did not conclude that amendment was necessarily futile because it could not discern the full contours of Stanford Health Care’s legal theories.

Disposition

Judge Edward J. Davila granted the defendants’ motion to dismiss. The court dismissed the First Amended Complaint with leave to amend and ordered that any amendment be filed within 21 days of the order. The order did not finally bar Stanford Health Care from filing an amended complaint.