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IHC Health Services Inc. v. ELAP Services, LLC

United States District Court, D. Utah, Central Division

September 28, 2018

IHC HEALTH SERVICES INC., a nonprofit Utah corporation, Plaintiff,
ELAP SERVICES, LLC, a limited liability company, Defendants.



         Before the court is the Defendant's Rule 12(b)(6) Motion to Dismiss the Complaint and Jury Demand for insufficient pleading and failure to state a claim. For the reasons discussed below, the court hereby grants in part and denies in part defendant ELAP Services's motion to dismiss and grants IHC leave to amend.


         IHC Health Services, Inc. (“IHC”) is a non-profit Utah corporation operating 22 hospitals and 185 clinics in Utah and Idaho. Complaint and Jury Demand ¶¶ 1-2. ELAP Services, LLC (“ELAP”) is a limited-liability company organized and existing under the laws of Pennsylvania. Compl. ¶ 4.

         ELAP provides “health care cost containment services” for its clients. Defendant's Rule 12(b)(6) Motion to Dismiss (“Motion”) 3. ELAP's clients include “small to medium sized companies” who “sponsor their own ERISA self-funded healthcare plans.” Motion 3. Companies contract with ELAP to “audit[] hospital claims” incurred by members of the self-funded plans at various medical providers. Motion 3; Compl. ¶¶ 25, 28, 30. The ELAP-contracted plan (“Plan”) submits the bills received to ELAP, which then decides how much of any given Plan member's hospital bill the Plan should pay, allegedly in accordance with accepted Medicare rates. Compl. ¶¶ 30-31. ELAP calls its role “Designated Decision Maker.” Compl. ¶ 30.

         The dispute between the parties arises from the fact that IHC does not recognize ELAP's authority to decide the amount a Plan, or a patient, should pay absent a prior agreement with IHC. Compl. ¶¶ 25, 31. When patients are admitted to an IHC facility, they sign a “Patient Agreement.” Compl. ¶ 20. By signing this contract, the patients agree to pay their full medical bill as charged by IHC, whatever that amount may be. Compl. ¶¶ 20, 24, 35. But patients who are enrolled in certain insurance plans are eligible for discounts and reduced rates. Compl. ¶ 24.

         IHC “regularly enters into contracts with health insurers.” Compl. ¶ 18. These contracts, “preferred-provider agreements, ” set mutually negotiated rates that “determine what amount [IHC] will accept as payment for the care provided.” Compl. ¶¶ 18-20. These amounts are at significantly reduced rates, which benefit IHC and patients. Compl. ¶ 21.

         ELAP has not entered into preferred-provider agreements with IHC. Compl. ¶ 25. Nor have any of the ELAP Plans. Compl. ¶ 25. This means that IHC is under no contractual obligation to lower its rates for these Plans, or the Plan members who become IHC patients. Compl. ¶¶ 28-31. Thus, when an ELAP Plan member is admitted to an IHC clinic or hospital and signs a Patient Agreement with IHC, that patient is contractually obligated to pay the full amount of the bill and IHC is not obligated to accept the amount the Plan, through ELAP, decides to pay. Compl. ¶¶ 35-36.

         IHC alleges that ELAP “purposefully, willfully, intentionally and knowingly” encourages Plan members “to obtain services and enter into Patient Agreements” without any intention of paying the full amount of the bill, but with the knowledge that IHC is not obligated to respect ELAP's price determinations. Compl. ¶¶ 35-38. ELAP tells Plan members that they are not liable for any bills the Plan and Plan members receive from hospitals after the Plan pays the ELAP determined amount because the bills are demands for “reimbursement in excess of what [the Plan] has already paid.” Compl. ¶ 41. When IHC attempts to collect on these outstanding bills, ELAP “institutes and funds litigation against Intermountain.” Compl. ¶ 54.

         IHC alleges that the statements ELAP makes to its Plans and Plan members, including but not limited to statements published in advertising materials such as “Put Your Claims Costs Back in the Box, ” (Opposition to Motion to Dismiss (“Opposition”), Exhibit 1) and “Helpful Facts to Assist You with Any Balance Bill or Collection Notices” (Opposition, Exhibit 2), are “false, misleading and deceptive” and made with malice. Compl. ¶ 40. IHC alleges that ELAP purposefully disguises its involvement in these self-funded Plans and intentionally interferes with IHC's Patient Agreements. Compl. ¶¶ 38, 52-54.

         ELAP denies that its business practice is tortious. ELAP alleges that it establishes the “reasonable value of the charges” and offers “ERISA plans the ability to control unreasonable health care costs” and that it does so in accordance with Utah law. Motion 4. ELAP denies misrepresenting any facts to its clients, including Plans and Plan members. Motion 5.



         ELAP moves under Fed.R.Civ.P. 12(b)(6) to dismiss IHC's Complaint for failure to state a claim. A claim is properly dismissed under Fed.R.Civ.P. 12(b)(6) if it fails to meet either the general pleading requirements of Fed.R.Civ.P. 8 or the specialized pleading requirements of Fed.R.Civ.P. 9. Seattle-First Nat. Bank v. Carlstedt, 800 F.2d 1008, 1011 (10th Cir. 1986).

         Under the general pleading standard of Fed.R.Civ.P. 8, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The burden is on the plaintiff to frame a complaint with enough factual matter (taken as true) to suggest that he or she is entitled to relief.” Robbins v. Oklahoma ex rel. Dept. of Human Servs., 519 F.3d 1242, 1247 (10th Cir. 2008) (internal quotation marks omitted). The “mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complaint must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678.

         Some of IHC's claims for relief are governed by Fed.R.Civ.P. 9(b) and (g). Fed.R.Civ.P. 9(b) requires that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” However, “[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Id. Under Fed.R.Civ.P. 9(g), special damages “must be specifically stated.” When applying either standard to the factual allegations levied against the defendant “[a]t the motion-to-dismiss stage, we must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff.” Albers v. Bd. of Cty. Comm'rs of Jefferson Cty., 771 F.3d 697, 700 (10th Cir. 2014) (quoting Cressman v. Thompson, 719 F.3d 1139, 1152 (10th Cir. 2013)). In evaluating a complaint on a motion to dismiss, “a court should disregard all conclusory statements of law and consider whether the remaining specific factual allegations, if assumed to be true, plausibly suggest the defendant is liable.” Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1214 (10th Cir. 2011).

         IHC alleges six claims for relief against ELAP: 1. Tortious Interference with Economic Advantage (“Count 1”); 2. Injurious Falsehood (“Count 2”); 3. Fraud (“Count 3”); 4. Negligent Misrepresentation (“Count 4”); 5. Declaratory Judgment (“Count 5”); and 6. Preliminary and Permanent Injunction (“Count 6”). Compl. ¶ 47-96. However, the court concludes that IHC has failed to plausibly allege Counts 2-5. Those counts are therefore dismissed, but with leave to amend.


         A. Count I: Intentional Interference with Economic Relations

          To establish a prima facie case of intentional interference with existing and potential economic relations, a plaintiff must allege: “(1) that the defendant intentionally interfered with the plaintiff's existing or potential economic relations, (2) . . . by improper means, (3) causing injury to the plaintiff.” Eldridge v. Johndrow, 2015 UT 21, ¶ 70, 345 P.3d 553, 565. IHC has made sufficient factual allegations, when accepted as true, to state a plausible claim for tortious interference in accordance with Twombley and Iqbal.

         1. Existing or Potential Economic Relations

          IHC alleges that ELAP is intentionally interfering with the Patient Agreements between IHC and its patients and also the potential and existing economic relationships between IHC's preferred-providers and their members. Compl. ¶ 50-55. ELAP admits to acting as an intermediary to protect small businesses and their employees from IHC's exorbitant healthcare costs. Motion 3. ELAP “audits” IHC's bills and instructs Plans and members how much to pay. ELAP does not deny this behavior, and the court finds that IHC has sufficiently pled the first element of this claim.

         2. Improper Means

         ELAP asserts that IHC has failed to allege the second element of a tortious interference claim, improper means. Motion 9-12. According to ELAP, a deliberate breach of contract and/or any alleged actions encouraging a deliberate breach of contract cannot constitute improper means. Motion 10. As IHC has not alleged that ELAP itself has breached any contracts, the court does not reach whether a deliberate breach can be grounds for tortious interference. As to the second argument, ELAP is correct that, “[m]erely persuading another company to withdraw its business from a competitor is not, without more, an improper means under Utah law.” SCO Grp., Inc. v. Int'l Bus. Machines Corp., 879 F.3d 1062, 1083-84 (10th Cir. 2018). But the real question is whether IHC has met its burden to establish that ELAP has done “more” than just merely “persuade.” Id.

         In SCO Grp., 879 F.3d at 1083, the Tenth Circuit, quoting Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293, 308 (Utah 1982), held “[t]he improper-means requirement is satisfied where the means used to interfere with a party's economic relations are contrary to law, such as violations of statutes, regulations, or recognized common-law rules. Commonly included among improper means are violence, threats or other intimidation, deceit or misrepresentation, bribery, unfounded litigation, defamation, or disparaging falsehood.” (internal quotation marks omitted). Improper means can also include violations of “an established standard of a trade or profession.” Leigh Furniture, 657 P.2d at 308.

         IHC alleges that ELAP interfered with IHC's economic relations through unfounded litigation (Compl. ¶ 32), which is “[c]ommonly included among improper means. . . .” Leigh Furniture, 657 P.2d at 308. But IHC's conclusory allegation that ELAP's litigation is “unfounded” is insufficient to establish the improper means required to state a claim for tortious interference. Under Utah law, the torts of “wrongful civil proceedings and abuse of process” are “narrowly defined, ” and IHC has done nothing to plead the elements of either tort. Anderson Dev. Co. v. Tobias, 2005 UT 36, ¶ 59, 116 P.3d 323, 339 (citing Gilbert v. Ince, 1999 UT 65, ¶¶ 17, 19, 981 P.2d 841). Nevertheless, the court does not dismiss IHC's tortious interference claim on this ground, because IHC has also alleged that ELAP interfered with IHC's economic relations through false statements to IHC patients and fraudulent misrepresentations, potentially made in violation of false advertising laws. Compl. ¶ 28-31, 40; Opposition 18-19. “[D]eceit or misrepresentation” and “violations of statutes, ” both constitute improper means under Utah law. SCO Grp, 879 F.3d, at 1083.

         Under the pleading standard of Fed.R.Civ.P. 8, IHC has met its burden of alleging wrongful means. But ELAP argues that the more demanding pleading standard of Fed. R. Civ. P 9(b) applies, and that under Fed. R. Civ. P 9(b), IHC has failed to plead with particularity facts in support of a tortious interference claim. Motion 13. According to ELAP, Fed.R.Civ.P. 9(b) applies to all false statements, and any claim based on a false statement must be pled with particularity. Motion 13.

         Fed. R. Civ. P. 9(b) states that “in all averments of fraud or mistake, the circumstances constituting the fraud or mistake shall be stated with particularity.” This pleading requirement must be applied to any case brought in federal court where federal law has held that it should be applied. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003). “It is established law, in this circuit and elsewhere, that Rule 9(b)'s particularity requirement applies to state-law causes of action.” Id. “[W]hile a federal court will examine state law to determine whether the elements of fraud have been pled sufficiently to state a cause of action, the Rule 9(b) requirement that the circumstances of the fraud must be stated with particularity is a federally imposed rule.” Id. (emphasis in original) (quoting Hayduk v. Lanna,775 F.2d 441, 443 (1st Cir.1985). Although there is no Tenth Circuit case on point, Vess cites to First, Sixth, Eighth, and Ninth Circuit cases. See ...

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