Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_04-cv-01576/USCOURTS-azd-2_04-cv-01576-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Spinedex Physical Therapy, U.S.A., 

Inc., an Arizona corporation, 

Plaintiff, 

vs.

The State of Arizona; the 

Arizona Department of Insurance; 

United Healthcare of Arizona, Inc., 

Defendants. 

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No. CV 04-1576-PHX-JAT

ORDER

Pending before the Court are the Plaintiff's Motion For Leave to File Second

Amended Complaint (doc. 50); the Plaintiff's Motion to Dismiss Defendant United

Healthcare of Arizona's Original Counterclaim (doc. 52); and the Defendant's Motion for

Extension of Time (doc. 53). The Court now rules on the motions.

I. FACTUAL BACKGROUND

On July 7, 2004, the Plaintiff, Spinedex, filed a Complaint in the Maricopa County

Superior Court seeking, under an assignment of rights and benefits by Annalisa Gallegos,

judicial review of a final administrative decision of the Arizona Department of Insurance

pursuant to Ariz. Rev. Stat. Ann. ("A.R.S.") § 20-2537(A) (West 2002). 

On August 2, 2004, the Defendants removed the case to the United States District

Court for the District of Arizona on the basis that the Plaintiff's claims were preempted under

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the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq., as

amended ("ERISA"). 

On August 16, 2004, Defendant United Healthcare of Arizona (“United”) filed a

Motion to Consolidate cases: CV 04-1576-PHX-JAT; CV 04-1578-PHX-MHM; CV 04-

1579-PHX-DGC; CV 04-1611-PHX-MHM; CV 04-1621-PHX-RCB; CV 04-1629-PHXSRB; CV 04-1623-PHX-EHC; CV 04-1624-PHX-MS; CV 04-1622-PHX-LOA; CV 04-

1627-PHX-EHC; CV 04-1625-PHX-FJM; CV 04-1604-PHX-SRB; CV 04-1605-PHX-JWS;

CV 04-1628-PHX-EHC; CV 04-1626-PHX-JAT; CV 04-1612-PHX-SRB; CV 04-1602-

PHX-EHC; CV 04-1600-PHX-FJM; and CV 04-1613-PHX-LOA. 

The Court found that the three Spinedex cases, CV 04-1576-PHX-JAT, CV 04-1578-

PHX-MHM, and CV 04-1579-PHX-DGC, were all appeals from external independent

medical reviews pursuant to A.R.S. § 20-2537. However, the remaining 16 cases were not

appeals from external independent medical reviews, and included additional claims such as

breach of contract and quantum meruit. Additionally, they substantially differed from the

Spinedex cases procedurally. Accordingly, the Court granted the request to consolidate the

three Spinedex cases, but denied the request to consolidate the remaining cases. 

On March 10, 2005, the Plaintiff filed a First Amended Complaint re-characterizing

its claims to allege violations of ERISA and to include the allegations made in the cases

consolidated with this action. The Plaintiff's First Amended Complaint now seeks relief,

under an assignment of rights and benefits, on behalf of three participants who completed the

administrative review process: (1) Annalisa Gallegos; (2) Doreen Bennett; and (3) Ronald

Russell. The Plaintiff's First Amended Complaint not only seeks recovery of benefits under

ERISA, it also asserts additional claims that the Defendant's behavior toward the three plan

participants constituted breach of fiduciary duty, breach duty to act in accordance with

documents and instruments governing the Ky Ko Plan, and fiduciary self-dealing -- all

alleged violations of ERISA. 

On April 14, 2005, the Defendant filed its Answer to the Plaintiff's Amended

Complaint and a Counterclaim. The Defendant's Counterclaim alleges that the Plaintiff

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(Spinedex) improperly completed benefit forms by filling in incorrect codes and submitting

the claim forms to the Defendant for payment of non-covered benefits. The Defendant

claims that based on the inaccurate claim forms it mistakenly made payments to the Plaintiff

for non-covered benefits. The Defendant now seeks damages from the Plaintiff under a

variety of state law theories including unjust enrichment, restitution, and negligent

misrepresentation. 

On May 13, 2005, the Plaintiff filed a Motion for Leave to File Second Amended

Complaint and lodged a copy of the Second Amended Complaint. The Plaintiff's Second

Amended Complaint seeks to add claims relating to twenty-three additional participants to

the group health insurance plan underwritten and administered by the Defendant. These 23

participants have assigned their rights and benefits to the Plaintiff. The Second Amended

Complaint seeks benefits on behalf of these individuals and alleges claims for breach of

fiduciary duty and fiduciary self-dealing. However, these individuals have not completed

the administrative appeal process. Therefore, unlike the Plaintiff's prior complaints, the

Plaintiff now seeks to enjoin the Defendant from: (1) further denying any of the benefit

claims submitted by the Plaintiff without performing a proper review; (2) further breaching

its fiduciary duties as set forth in ERISA; and (3) from further engaging in prohibited selfdealing. (Second Amended Complaint p. 65, lines 1-12). 

On May 20, 2005, the Plaintiff filed a Motion to Dismiss the Defendant's Original

Counterclaim. The Plaintiff contends that the Defendant's claims are all pre-empted by

ERISA, and that the Defendant cannot amend its Counterclaim to state a claim under ERISA.

On May 27, 2005, the Defendant filed its Opposition to the Plaintiff's Motion for

Leave to File Second Amended Complaint. The Defendant argues, for various reasons, that

the Court should not permit the Plaintiff's Amendments. Alternatively, the Defendant asks

for an additional time to answer the Plaintiff's Second Amended Complaint. The Defendant's

request for additional time is unopposed by the Plaintiff. 

II. DISCUSSION

A. The Plaintiff's Motion For Leave to File Second Amended Complaint 

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 The Plaintiff seeks leave from the Court to file a Second Amended Complaint adding

claims relating to twenty-three additional participants to the group health insurance plan

underwritten and administered by the Defendant. In addition to the claims asserted in the

First Amended Complaint, the Second Amended Complaint seeks to enjoin the Defendant

from: (1) further denying any of the benefit claims submitted by the Plaintiff without

performing a proper review; (2) further breaching its fiduciary duties as set forth in ERISA;

and (3) from further engaging in prohibited self-dealing.

After a party has amended a pleading once as a matter of course, it may only amend

further after obtaining leave of the court, or by consent of the adverse party. Eminence

Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003). Fed. R. Civ. P. 15(a)

declares that leave to amend shall be freely given when justice so requires. However, the

liberal policy in favor of amendments, is subject to some limitations. When, as in this case,

a responsive pleading has been filed, leave to amend is not appropriate if the “amendment

would cause prejudice to the opposing party, is sought in bad faith, is futile, or creates undue

delay.” Madeja v. Olympic Packers, 310 F.3d 628, 636 (9th Cir. 2002). The party opposing

amendment bears the burden of showing prejudice, futility, undue delay, or another

permissible reason for denying a motion to amend. Eminence Capital, 316 F.3d at 1052. For

the reasons set forth below, the Court finds that the Defendant has met this burden. 

The Defendant argues that the amendments should not be granted because the

amendments: (1) are futile; (2) will cause undue delay; (3) will prejudice the Defendant; and

(4) contradict and circumvent this Court's prior consolidation order holding that this case

only involves claims that have completed the external review and appeal process. Prejudice

to the opposing party carries the greatest weight in a court's consideration of whether to grant

or deny a request for leave to amend. Eminence Capital, 316 F.3d at 1052. The Defendant

argues that it would be prejudiced if the Court were to allow, at this point in the litigation,

the addition of new claims based on 23 new plan participants. The Court agrees. 

 Because the new plan participants have not completed the review and appeal process,

the Plaintiff's claims are substantively different than the claims asserted in the First Amended

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Complaint. In addition to seeking benefits, the Plaintiff now seeks to enjoin the Defendant

from: (1) further denying any of the benefit claims submitted by the Plaintiff without

performing a proper review; (2) further breaching its fiduciary duties as set forth in ERISA;

and (3) from further engaging in prohibited self-dealing. (Second Amended Complaint p.

65, lines 1-12). 

The Plaintiff's Second Amended Complaint contains claims relating to the denial of

benefits pertaining to twenty-three new plan participants. The Defendant has not yet had an

opportunity to investigate and conduct discovery with respect to these claims. Additionally,

because these individuals have not completed the appeal process, the Second Amended

complaint now adds claims that are both procedurally and substantively different than the

claims alleged in the First amended Complaint. Again, the Defendant has had no opportunity

to conduct discovery with respect to these new claims. 

The Plaintiff's proposed amendments advance new claims and require proof of new

facts. If the Court allows this amendment, the Defendant will have to investigate and defend

claims that are not only different substantively, but also include 23 additional plan

participants. To the extent that the Defendant has already conducted discovery, it may now

have to go back and duplicate its efforts and/or participate in additional discovery in order

to defend the claims against it. The Court finds that this would be prejudicial to the

Defendant. Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1087 (9th Cir. 2002) (prejudice

can result where a defendant is forced to participate in additional discovery). 

It is relevant to point out that the discovery deadline in this case is November 15,

2005. Presumably, therefore, discovery in this case is almost complete. Allowing such

extensive changes to the Plaintiff's Complaint now would require the Court to consider reopening discovery and changing the dispositive motion deadline at a point in time when

discovery is so near completion and the attorneys should be preparing this case for trial. Such

an extension constitutes undue delay. Solomon v. N. Am. Life & Cas. Ins. Co., 151 F.3d

1132, 1139 (9th Cir. 1998). 

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Additionally, the Plaintiff has offered no legitimate excuse or justification for its

failure to raise these additional claims earlier. The decision to deny such a belated attempt

to expand a complaint lies within the discretion of the district court. Brass v. County of Los

Angeles, 328 F.3d 1192, 1197 (9th Cir. 2003).

 As the Plaintiff is aware, there are a number of other cases pending that involve

similar claims and issues to those that the Plaintiff now seeks to add to this case. This Court

has already ruled that those cases involved claimants who had not exhausted the appeal

process and, therefore, were not appropriate for consolidation with this case because of their

differing procedural posture. It would be inconsistent for this Court to now allow the

Plaintiff to add claims related to 23 new plan participants who have not completed the

external review process. 

Because the Court has found sufficient other grounds exist to deny the Plaintiff leave

to amend, the Court need not discuss the Defendant's futility argument. The Plaintiff's Motion

for Leave to File Second Amended Complaint is denied. The Defendant's alternative request

for time to Answer the Plaintiff's Second Amended Complaint is denied as moot.

B. The Plaintiff's Motion to Dismiss the Defendant's Counterclaim

The Plaintiff argues that the Defendant's Counterclaim should be dismissed for failure

to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). A complaint is properly dismissed under

Federal Rule of Civil Procedure 12(b)(6) only when it is “beyond doubt” that the plaintiff

cannot set forth any facts which would entitle it to relief. Fed. R. Civ. P. 12(b)(6); Osborne

v. Dist. Attorney's Office, 423 F.3d 1050, 1052 (9th Cir. 2005). In making this

determination, the complaint is liberally construed in the plaintiff’s favor and all material

facts alleged therein are taken as true. Gila River Indian Cmty. v. Waddell, 967 F.2d 1404,

1412 (9th Cir. 1992); Rosen v. Walters, 719 F.2d 1422, 1424 (9th Cir. 1983). 

A Rule 12(b)6 dismissal must be based on either: (1) the lack of a cognizable legal

theory; or (2) insufficient facts to support a cognizable legal claim. Balistreri v. Pacifica

Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990); Robertson v. Dean Witter Reynolds, Inc.,

749 F.2d 530, 534 (9th Cir. 1984). Leave to amend should be granted unless it appears

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beyond doubt that there are “no set of facts” which would entitle the party to relief under the

asserted claim. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957); see also

Balistreri, 901 F.2d at 701. 

Here, the Plaintiff contends that the Defendant's Counterclaim fails to assert a

cognizable legal theory. Specifically, the Plaintiff argues that all of the Defendant's state law

claims are preempted by ERISA, and that the Defendant should not be granted leave to

amend the Counterclaim to state a claim under ERISA, because ERISA simply does not

provide the sort of remedies that the Defendant is seeking. 

There are two strands to ERISA's powerful preemptive force. First, ERISA section

514(a) expressly preempts all state laws that "relate to any employee benefit plan." 29

U.S.C. § 1144(a) but see 29 U.S.C. § 1144(b)(2)(A) (providing an exception for state laws

which regulate insurance, banking, or securities). Second, ERISA section 502(a) contains

a comprehensive scheme of civil remedies to enforce ERISA's provisions. 29 U.S.C. §

1132(a). A state cause of action that would fall within the scope of this scheme of remedies

is preempted as conflicting with the intended exclusivity of the ERISA remedial scheme,

even if those causes of action would not necessarily be preempted by section 514(a).

Cleghorn v. Blue Shield of California, 408 F.3d 1222, 1225 (9th Cir. 2005). 

Thus, in order to survive preemption, ERISA must not already provide a cause of

action for the claims alleged. 29 U.S.C. § 1132(a); Cleghorn, 408 F.3d at 1225. The parties

in this case apparently do not dispute that the Defendant does not have a remedy under

ERISA for the claims alleged in the Counterclaim. In fact, the Plaintiff argued at length in

its Motion to Dismiss that the Defendant cannot restate its claims as arising under ERISA's

remedial scheme, because ERISA does not provide remedies for the relief sought by the

Defendant. The Defendant did not respond to this portion of the Plaintiff's Motion to

Dismiss, nor did the Defendant seek leave to amend its Counterclaim to state a claim under

ERISA. Rather, the Defendant merely contends that its claims are governed by generally

applicable state law not ERISA. 

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The Defendant's claims (restitution, unjust enrichment, negligent misrepresentation)

all seek damages based on monies allegedly wrongfully paid to the Plaintiff. ERISA does

not provide a cause of action for "equitable" claims seeking money damages. Carpenters

Health and Welfare Trust v. Vonderharr, 384 F.3d 667, 670 (9th Cir. 2004). Although

equitable claims that seek to prevent future losses are allowed under ERISA, those that

money damages from past harms are not. Peralta v. Hispanic Business, Inc., 419 F.3d 106,

1075-76 (9th Cir. 2005). Because ERISA does not already provide a remedy for the claims

alleged, the Defendant's Counterclaim is not preempted by 1132(a). Accordingly, the Court

will move on to its analysis of preemption under section 514(a).

For purposes of preemption analysis, a common law claim "relates to" an employee

benefit plan governed by ERISA if it has a "connection with or reference to" the plan.

Providence Health Plan v. McDowell, 385 F.3d 1168, 1172 (9th Cir. 2004). In evaluating

whether a common law claim has a "connection with" a plan governed by ERISA, the Court

evaluates whether the action has a genuine impact on a relationship governed by ERISA,

such as the relationship between the plan and a participant. Id.; Abraham v. Norcal Waste

Sys., 265 F.3d 811, 820-21 (9th Cir. 2001). In evaluating whether a common law claim has

"reference to" a plan governed by ERISA, the Court evaluates whether the claim is premised

on the existence of an ERISA plan, and whether the existence of the plan is essential to the

claim's survival. Providence Health Plan, 385 F.3d at 1172. If so, a sufficient "reference"

to the plan exists to support preemption. Id.

The Defendant's Counterclaim asserts three state law claims: (1) negligent

misrepresentation (arising from the Plaintiff's submission of claim forms on behalf of therapy

the Plaintiff provided to plan members); (2) restitution (for money paid to the Plaintiff for

non-covered benefits administered to plan members); and (3) unjust enrichment (return of

money wrongfully paid to the Plaintiff for uncovered benefits). The basis of all of the

Defendant's claims are based on its allegations that the Plaintiff submitted benefit forms to

the Defendant after filling in the wrong codes for a specific type of therapy that it provided

to some of its plan members. The Defendant contends that based on the inaccurate coding

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of the forms, the Defendant mistakenly made payments to the Plaintiff for non-covered

benefits. The crux of all of the Defendant's claims is that because the Plaintiff misrepresented

the type of therapy it provided on the claim forms, and the Defendant made payments to the

Plaintiff for non-covered benefits based on those misrepresentation, the Defendant is entitled

to damages. 

It is clear that the Defendant and the plan members have an ERISA relationship.

However, in arguing that the Defendant cannot state a claim under ERISA, the Plaintiff

throughout its Motion and Reply admits that the Plaintiff has absolutely no ERISA governed

relationship with the Defendant with respect to the asserted Counterclaims. The Plaintiff also

admits that it is not a plan fiduciary, and its only relationship to the plan members is

contractual. 

Although the Defendant is an ERISA entity, ERISA does not necessarily preempt

lawsuits that arise out of the relationship between an ERISA entity and a third-party.

Geweke Ford v. St. Joseph's Omni Preferred Care Inc., 130 F.3d 1355, 1360 (9th Cir. 1997).

With respect to the Defendant's Counterclaim, the Plaintiff is for all intents and purposes a

third-party. The relationship between the plan members and the Defendant, or the plan

members and the Plaintiff, are completely irrelevant to the Defendant's allegations that the

Plaintiff mis-coded and submitted claim forms for payment to the Defendant. The Court

concludes that the common law claims asserted by the Defendant do not genuinely impact

or encroach upon a relationship regulated by ERISA, such as the relationship between plan

and plan member, plan and employer, or plan and trustee. See Abraham, 265 F.3d at 821.

Although the Defendant's claims in this case happen to involve an employee benefit

plan, the basis of the Counterclaim is the Plaintiff's alleged misrepresentations when

submitting claim forms, and would have existed regardless of the type of employee benefit

plan the Plaintiff was seeking coverage under. The Defendant's claims arise out of

transactions between the Defendant and the Plaintiff that are independent of any ERISA

relationship. See id. The claims of negligent misrepresentation, unjust enrichment, and

restitution are simply not "premised upon" the existence of an ERISA plan, and the ERISA

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plan itself is not essential to Defendant's claims. See Providence Health Plan, 385 F.3d at

1172. The Defendant's common law claims do not have sufficient "connection with" the

ERISA plan at issue in this case to be preempted.

Nevertheless, the Plaintiff contends that even if the Defendant's claims are not

"premised upon" an ERISA plan and do not "genuinely impact" an ERISA relationship under

the more traditional relationship-based preemption tests, the Defendant's Counterclaim is

still preempted because the claims alleged require the Court to interpret an ERISA plan. 

The Plaintiff contends that in order for this Court to determine whether or not the

Defendant is entitled to relief under its claims of negligent misrepresentation, unjust

enrichment, and restitution, the Court would first have to "interpret" the plan members'

employee benefit plan. Aetna Health Inc v Davila, 542 U.S. 200, __, 124 S.Ct 2488, 2497

(2004) (ERISA preempts claims that do not arise independently of ERISA and where the

interpretation of ERISA-plan-terms form an essential part of the claim). The Defendant, on

the other hand, argues that its claims "merely reference" the plan, and do not require ERISA

plan interpretation. The Court agrees.

This case is distinguishable from the cases relied upon by the Plaintiff because ERISA

plan interpretation is not an essential part of the Defendant's claims. Although the Defendant

will have to prove that the Plaintiff did in fact fill in the wrong codes and received payment

for non-covered benefits, the Court does not have to interpret the plan in any manner that

would substantially effect the rights and obligations established by the employee benefit plan

in this case. 

Unlike the cases cited by the Plaintiff, liability in this case does not exist only because

of the administration of an ERISA plan. The actions complained about by the Defendant

violate general common law legal duties, such as the duty not to knowingly provide

fraudulent, false or misleading information. These duties all arise independently from

ERISA or the terms of the employee benefit plan at issue in this case. This Court's

determination of the Defendant's claims, notwithstanding any investigation into whether the

claims were coded correctly, are entirely independent of the ERISA plan or any ERISA

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regulated relationship. Accordingly, the Court concludes that the Defendant's claims are not

preempted by ERISA. 

The intent behind ERISA's preemption clause was to avoid multiplicity of regulation

and permit the nationally uniform administration of employee benefit plans. Dishman v.

UNUM Life Ins. Co., 269 F.3d 974, 981 (9th Cir. 2001) (citing New York Conference of Blue

Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 656, 115 S.Ct. 1671, __

(1995)). Arizona's common law with respect to negligent misrepresentation, restitution, and

unjust enrichment, does not encroach upon employee benefit structures or their

administration, or interfere with nationally uniform plan administration. 

If this Court were to hold the way that the Plaintiff suggests and find that ERISA not

only fails to provide the Defendant with a remedy for the claims alleged in its Counterclaim,

but that ERISA also preempts the Defendant's state law claims, the result would be that there

is simply no legal remedy when a medical provider submits false claims to an ERISA plan

administrator to secure payment of non-covered benefits. Yet, under the same set of facts,

a non-ERISA insurer would clearly be able to maintain state law claims based on fraud,

misrepresentation, unjust enrichment, etc. 

In other words, providers would be subject to state law liability for fraud and

misrepresentation when submitting claims for benefits for non-ERISA patients, but not

subject to liability when submitting false claims for benefits for ERISA patients. This seems

contrary to the very spirit of ERISA's preemption provision and comprehensive remedial

scheme. The Court just cannot imagine that Congress intended through its enactment of

ERISA to completely eviscerate state common law claims in areas where ERISA does not

provide any remedy, particularly when the claims only incidentally involve an ERISA plan.

The Plaintiff's Motion to Dismiss the Defendant's Original Counterclaim is denied.

III. CONCLUSION

For the foregoing reasons, 

IT IS ORDERED DENYING the Plaintiff's Motion For Leave to File Second

Amended Complaint (doc. 50).

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IT IS ORDERED DENYING the Plaintiff's Motion to Dismiss the Defendant's

Original Counterclaim (doc. 52). 

IT IS ORDERED DENYING AS MOOT the Defendant's Motion for Extension of

Time (doc. 53). 

DATED this 9th day of November, 2005.

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