Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_18-cv-00152/USCOURTS-casd-3_18-cv-00152-1/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332ij Diversity-Injunctive &amp; Declaratory Relief

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

ROBERT JOSTEN, on Behalf of Himself 

and All Others Similarly Situated, 

Plaintiff,

v.

RITE AID CORPORATION, 

Defendant.

Case No.: 18-cv-0152-AJB-JLB

ORDER DENYING DEFENDANT’S 

MOTION TO DISMISS

(Doc. No. 28)

Defendant Rite Aid again moves to dismiss Robert Josten’s amended complaint after 

the Court previously granted Josten amendment. (Doc. No. 28.) In the current motion, Rite 

Aid renews its argument that Josten failed to allege tolling under the delayed discovery 

rule. Rite Aid also argues the Court has no jurisdiction over Josten’s claims because he 

failed to exhaust his administrative remedies under the Medicare Act. However, the Court 

finds both of these arguments fail. First, the Court finds Josten appropriately alleges tolling 

in his amended complaint. Second, the Court finds Josten’s claims do not arise under The 

Medicare Act and are thus not subject to its exhaustion requirements. Accordingly, the 

Court DENIES Rite Aid’s motion to dismiss. (Doc. No. 28.)

I. BACKGROUND

The following facts are taken from Plaintiff’s complaint, (Doc. No. 27), and are 

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construed as true for the limited purpose of resolving the instant motion. See Brown v. Elec. 

Arts, Inc., 724 F.3d 1235, 1247 (9th Cir. 2013) (reasoning that when considering a motion 

to dismiss, courts presume the facts alleged by the plaintiff are true).

Plaintiff’s claims are all based on the assertion that he was forced to pay an inflated 

copayment under his insurance plan because Rite Aid reported prescription drug prices to 

his insurance carrier that were not its “usual and customary” (“U&C”) prices for those 

drugs. (Doc. No. 27 ¶ 1.) About 90% of all United States citizens are now enrolled in 

private or public health insurance plans that cover at least a portion of the cost of medical

and prescription drug benefits. (Id. ¶ 2.) A feature of most of these health insurance plans

is the shared cost of prescription drugs. (Id.) Typically, when a consumer fills a prescription 

for a medically necessary prescription drug under his or her health insurance plan, the thirdparty payor (“TPP”) pays a portion of the cost and the consumer pays the remaining portion 

of the cost directly to the pharmacy in the form of a copayment, coinsurance, or deductible 

payment. (Id.)

In an effort to control their prescription drug costs, many insurance companies and 

TPPs require consumers to purchase generic prescription drugs when available because 

generic drugs often cost less than the brand-name version. (Id. ¶ 3.) Plaintiff alleges that 

he and the members of the Class are paying much more for certain generics than Rite Aid’s 

cash-paying customers who fill their generic prescriptions through Rite Aid’s discount 

generic drug program, called the “Rx Savings [P]rogram” (“Rx Program” or “RSP”),

without using health insurance. (Id. ¶ 4.) 

The crux of his argument is that a pharmacy cannot charge a consumer, or report to 

a TPP, a higher price for prescription drugs than the pharmacy’s U&C price. (Id. ¶ 55–62.) 

The U&C price is referred to by Rite Aid and known throughout the pharmacy industry as 

the price that the pharmacy most commonly charges the cash-paying public. (Id. ¶ 56.)

Plaintiff alleges that Rite Aid, instead of complying with this requirement, maintains an 

undisclosed, dual pricing scheme for the prescription drugs available through the Rx 

Program and overcharges consumers like Plaintiff and the Class, in excess of Rite Aid’s 

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actual U&C prices for these generics. (Id. ¶ 6.) Thus, Plaintiff alleges that Rite Aid has 

knowingly and intentionally reported artificially inflated U&C prices for RSP Generics on 

claims for reimbursement submitted to TTP. (Id. ¶ 14.) 

Plaintiff filed his first amended complaint on December 11, 2018. (Doc. No. 27.) 

Plaintiff alleges causes of action for violations of: (1) Negligent Misrepresentation; (2) 

Unjust Enrichment; (3) Unfair Competition law (“UCL”) based on unfair acts and 

practices; (4) UCL based on unlawful acts and practices; (5) Consumer Legal Remedies 

Act (“CLRA”); and (6) Declaratory and Injunctive Relief. (Doc. No. 27.) In his prayer for 

relief, Plaintiff requests the Court certify his action as a class action, award compensatory, 

consequential, and general damages, grant permanent injunctive relief, and award statutory 

treble, punitive, or exemplary damages, among other things. (Id. at 43–44.) 

II. LEGAL STANDARD

A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the pleadings 

and allows a court to dismiss a complaint upon a finding that the plaintiff has failed to state 

a claim upon which relief may be granted. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 

2001). The court may dismiss a complaint as a matter of law for: “(1) lack of cognizable 

legal theory or (2) insufficient facts under a cognizable legal claim.” SmileCare Dental 

Grp. v. Delta Dental Plan of Cal., 88 F.3d 780, 783 (9th Cir. 1996) (citation omitted). 

However, a complaint survives a motion to dismiss if it contains “enough facts to state a 

claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 

(2007). 

Notwithstanding this deference, the reviewing court need not accept legal 

conclusions as true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). It is also improper for the 

court to assume “the [plaintiff] can prove [he or she] has not alleged . . . .” Associated Gen. 

Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983). 

On the other hand, “[w]hen there are well-pleaded factual allegations, a court should 

assume their veracity and then determine whether they plausibly give rise to an entitlement 

to relief.” Iqbal, 556 U.S. at 679. The court only reviews the contents of the complaint, 

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accepting all factual allegations as true, and drawing all reasonable inferences in favor of 

the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002). 

III. DISCUSSION

In Rite Aid’s second motion to dismiss, they allege (1) the Court lacks jurisdiction 

over Josten’s claims, and (2) Josten’s claims are untimely. (Doc. No. 28-1.) In its prior 

motion to dismiss, Rite Aid alleged Josten failed to plead his causes of action and that his 

claims were untimely. (Doc. No. 15-1.) Rite Aid did not initially challenge jurisdiction. 

(See id.) The Court found that Josten adequately stated his claims but held that he did not 

adequately plead tolling and granted leave to amend on those grounds. (Doc. No. 25 at 12–

13.) 

A. Jurisdiction

Despite failing to bring any jurisdictional arguments in its first motion to dismiss, 

Rite Aid now argues Josten “failed to exhaust his Medicare administrative remedies, 

thereby depriving this Court of jurisdiction.” (Doc. No. 28-1 at 10.) Rite Aid now interprets 

Josten claims as arising under the Medicare Act because Josten alleges “his purchases were 

made through his Medicare coverage, specifically his Medicare and Medicare Advantage 

membership.” (Id.) As such, Rite Aid maintains, Josten needed to have exhausted those 

remedies first. (Id. at 10–11.) 

Josten asserts this argument is “mistaken.” (Doc. No. 30 at 10.) The Court agrees. 

The key inquiry in determining whether 42 U.S.C. § 405(h) requires exhaustion before we 

can exercise jurisdiction is whether the claim “arises under” the Act. Do Sung Uhm v. 

Humana, Inc., 620 F.3d 1134, 1141 (9th Cir. 2010). The Supreme Court has identified two 

circumstances in which a claim “arises under” the Medicare Act. Heckler v. Ringer, 466 

U.S. 602, 614–15 (1984). First, where the “standing and the substantive basis for the 

presentation of the claims” is the Medicare Act. Id. at 615. Second, where the claims are 

“inextricably intertwined” with a claim for Medicare benefits. Id. at 614. Courts have 

described § 405(h) as preventing “beneficiaries and potential beneficiaries from evading 

administrative review by creatively styling their benefits and eligibility claims as 

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constitutional or statutory challenges to Medicare statutes and regulations.” United States 

v. Blue Cross & Blue Shield of Ala., 156 F.3d 1098, 1104 (11th Cir. 1998); see Do Sung 

Uhm, 620 F.3d 1134 at 1141–42. 

Here, Rite Aid construes Josten’s allegations as a dispute regarding his coverage and 

copayment amounts. (Doc. No. 28-1 at 11–12.) However, Josten is not attempting to elude 

administrative review of any Medicare claim. Josten is not alleging anywhere in his 

complaint a challenge to Medicare statutes, regulations, or the Medicare-machine. Josten 

is not seeking to challenge his “coverage” or copayment amounts. As the Ninth Circuit put 

it, “our case law establishes that where, at bottom, a plaintiff is complaining about the 

denial of Medicare benefits . . . the claim ‘arises under’ the Medicare Act.” Do Sung Uhm, 

620 F.3d at 1142–43. Here, at bottom, Josten is making no such allegations. Similar to the 

Uhm’s, “it is [Rite Aid’s] misrepresentations themselves for which [Josten] seek[s] to 

remedy.” Id. at 1145. Josten’s allegations are solely focused on Rite Aid’s alleged 

misconduct. Thus, the Court agrees with Josten’s assertion that he “is challenging 

misrepresentations and unfair conduct that were collateral to any claim for benefits,” and 

thus was not required to exhaust his administrative remedies. (Doc. No. 30 at 12.)

B. Tolling

Rite Aid once again argues Josten’s CLRA, unjust enrichment, and negligent 

misrepresentation claims are time-barred. (Doc. No. 28-1 at 18.)

“In a federal diversity action based on alleged violations of state law, the state statute 

of limitations controls.” Adams v. I–Flow Corp., No. CV09–09550 R(SSx), 2010 WL 

1339948, at *3 (C.D. Cal. Mar. 30, 2010) (citing Bancorp Leasing and Financial Corp. v. 

Agusta Aviation Corp., 813 F.2d 272, 274 (9th Cir. 1987)). The statute of limitations for 

the foregoing causes of action are as follows: (1) CLRA—three years, Cal. Civ. Code 

§ 1783; (2) unjust enrichment—three years, In re Maxim Integrated Prod., Inc., Deriv. Lit.,

574 F. Supp. 2d 1046, 1072 (N.D. Cal. 2008); and (3) negligent misrepresentation—three 

years, Cal. Civ. Proc. Code § 338(d). 

Plaintiff alleges he has purchased generic versions of medications for personal use 

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from Defendant in California between 2014 and present. (Doc. No. 27 ¶ 16.) Thus, 

Plaintiff’s CLRA, unjust enrichment, and negligent misrepresentation claims would be 

time-barred in 2017. Plaintiff filed his complaint in 2018, a year after the statute of 

limitations for his various claims. However, Josten alleges these claims should be tolled 

because he had “neither actual nor constructive knowledge of the facts constituting their 

claims for relief until recently.” (Id. ¶ 79.) Additionally, Josten contends he could not have 

discovered through the exercise of reasonable diligence, the existence of the scheme at an 

earlier point in time. (Doc. No. 1 ¶ 80.) Because Plaintiff’s claims are technically timebarred, Plaintiff must rely on the delayed discovery rule.

“In order to invoke [the delayed discovery exception] to the statute of limitations, 

the plaintiff must specifically plead facts which show (1) the time and manner of discovery 

and (2) the inability to have made earlier discovery despite reasonable diligence.” In re 

Conseco Ins. Co. Annuity Mktg. & Sales Practices Litig., No. C–05–04726 RMW, 2008 

WL 4544441, at *8 (N.D. Cal. Sept. 30, 2008) (quoting Saliter v. Pierce Bros. Mortuaries, 

81 Cal. App. 3d 292, 296 (1978)). “The burden is on the plaintiff to show diligence, and 

conclusory allegations will not withstand demurrer.” E–Fab, Inc. v. Accountants, Inc. 

Services, 153 Cal. App. 4th 1308, 1319 (2007) (quoting McKelvey v. Boeing North 

American, Inc., 74 Cal. App. 4th 151, 160 (1999)). To rely on the delayed discovery rule, 

“the plaintiff must plead facts showing: ‘(a) Lack of knowledge. [sic] (b) Lack of means of 

obtaining knowledge (in the exercise of reasonable diligence the facts could not have been 

discovered at an earlier date). [sic] (c) How and when he did actually discover the fraud or 

mistake.’” Keilholtz v. Lennox Hearth Products Inc., No. C 08–00836 CW, 2009 WL 

2905960, *3 (N.D. Cal. Sept. 8, 2009) (quoting General Bedding Corp. v. Echevarria, 947 

F.2d 1395, 1397 (9th Cir. 1991)). 

A plaintiff seeking to take advantage of the delayed discovery rule must plead “the 

time and manner of discovery.” E–Fab, 153 Cal. App. 4th at 1319. The Court previously 

held that Josten failed “to allege the details of how he uncovered Rite Aid’s alleged scheme.

He only states that he had neither actual nor constructive knowledge of the facts 

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constituting the claims for relief until recently.” (Doc. No. 25 at 12.) However, in Josten’s 

FAC, he alleges he discovered the “unlawful conduct in mid-January 2018, through the 

investigation of Plaintiff’s counsel, which occurred in mid-January 2018.” (Doc. No. 27 

¶ 80.) Josten further argues he could not have discovered the scheme earlier because “Rite 

Aid misrepresented at the point of purchase that the copayment was accurate; and Rite Aid 

omitted at the point of purchase that Plaintiff was not receiving any benefit from his 

insurance.” (Id. ¶ 81.) Josten also states that Rite Aid “actively misled consumers by 

inflating and mispresenting U&C prices for RSP Generics to Plaintiff that were far higher 

than the RSP Prices (the actual U&C prices.” (Id. ¶ 83.) Finally, Josten alleges “Rite Aid 

also failed to post drug prices in a clear manner and in a way that would alert Plaintiff and 

the Class members to the artificially inflated priced charged by Rite Aid.” (Id.) 

Rite Aid argues Josten’s allegations still fail and is unconvinced that Josten could 

not have discovered the scheme prior to his consultation with his attorney. (Doc. No. 28-1 

at 20.) Rite Aid points to law rejecting plaintiffs’ assertions of the delayed discovery rule 

until after counsel was retained. (Id.) For example, Rite Aid quotes a California case 

purporting to hold that “[a] rule that permits a plaintiff to present timely claims at any point 

after consulting an attorney would render the statute of limitations meaningless.” (Id. at 20 

(quoting Nevarez v. Wells Fargo, N.A., No. C-12-1660 JCS, 2012 WL 2428233, at *5 (N.D. 

Cal. June 26, 2012)).) However, as Josten notes, in that case the plaintiff was challenging 

a contract he himself had signed, and the Court found a plaintiff “‘is presumed to be 

familiar with the contents of any document that bears the person’s signature.’” Nevarez, 

2012 WL 2428266, at *5 (quoting Motsinger v. Lithia Rose–FT, Inc., 211 Or. App. 610, 

616, 156 P.3d 156 (2007)). Here, Josten did sign anything which supplied him “with 

knowledge that the RSP prices represent the most common price paid by Rite Aid’s cashpaying customers.” (Doc. No. 30 at 17.) Nor would Josten have signed anything detailing 

the RSP program or prices altogether. Thus, Nevarez’s holding is inapplicable to the facts 

at hand.

As to the second element under the delayed discovery rule, the Court finds a 

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reasonable person in plaintiff’s position would had lacked the means for discovery of the 

alleged scheme. “The delayed discovery rule is typically employed when the defendant is 

in a far superior position to know of the act and the injury, and the act and the injury are 

difficult for the plaintiff to detect.” Keilholtz v. Lennox Hearth Products Inc., No. C 08-

00836 CW, 2009 WL 2905960, at *3 (N.D. Cal. Sept. 8, 2009). Here, Josten had no reason 

to suspect Rite Aid was failing to include its RSP prices in the U&C prices it reported. It 

would be, in the Court’s opinion, difficult for Josten to detect that he was being charged an 

inflated copayment amount because Rite Aid has set a dual-payment track for cash-paying 

customers of which it was failing to include in its U&C prices. Without having the 

sophisticated knowledge of the U&C reporting requirements and having gathered multiple 

pieces of the puzzle together such as the RSP prices and the copayment prices, even a 

person exercising reasonable diligence would have had a hard time piecing this one 

together. Accordingly, the Court finds Josten has pled equitable tolling. The Court declines 

to discuss Josten’s other arguments supporting its tolling. (See Doc. No. 30 at 18–20.) 

IV. CONCLUSION

In sum, the Court DENIES Rite Aid’s motion to dismiss, finding the Medicare Act’s 

exhaustion requirements do not apply to Josten’s claims and that Josten has appropriately 

alleged tolling. (Doc. No. 28.)

IT IS SO ORDERED. 

Dated: August 7, 2019

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