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IHC Health Services Inc. v. Elap Services, LLC

United States District Court, D. Utah

September 30, 2019

IHC HEALTH SERVICES INC., a non-profit Utah corporation, Plaintiff,
v.
ELAP SERVICES, LLC, a limited liability company, Defendant. MEMORANDUM DECISION AND GRANTING IN PART AND DENYING IN PART PLAINTFF’S AND DEFENDANT’S MOTIONS TO DISMISS

          ORDER

          JILL N. PARRISH UNITED STATES DISTRICT COURT JUDGE.

         This matter is before the court on the Partial Motion to Dismiss filed by Defendant and Counterclaim-Plaintiff ELAP Services, LLC (“ELAP”) and the Motion to Dismiss Defendant’s Counterclaims filed by Plaintiff and Counterclaim-Defendant IHC Health Services, Inc. (“IHC”).

         I. BACKGROUND

         IHC is a non-profit Utah corporation operating 22 hospitals and 185 clinics in Utah and Idaho. IHC provides medical services at its facilities. In 2016, IHC served more than 1.4 million patients in its hospitals and clinics. In 2015, IHC admitted more than 500, 000 patients to its emergency rooms. When patients are admitted to an IHC facility, they sign a “Patient Agreement, ” wherein they agree to pay the full medical bill charged by IHC. IHC does not disclose the cost of the treatment beforehand.

         If patients have health insurance, IHC bills their insurance provider. Many insurance providers have signed “preferred-provider agreements” (“PPAs”) with IHC. These contracts contain mutually agreed upon terms, including an agreement by IHC to collect only a mutually negotiated amount for any service. This means that patients who are insured by preferred providers pay significantly reduced rates. Absent a PPA, patients are contractually obligated by the Patient Agreement to pay the full amount charged by IHC.

         ELAP is a limited-liability company organized and existing under the laws of Pennsylvania. ELAP provides “health care cost containment services” for its clients, which are small to medium sized companies that sponsor their own ERISA self-funded healthcare plans. These companies contract with ELAP to “audit” the medical bills incurred by members of their plans. When a member of an ELAP-contracted plan (“Plan”) receives treatment from a medical provider, his or her Plan submits the bills to ELAP. ELAP then purports to decide the reasonable amount for that service, or the Allowable Claim Limit (“ACL”). The ACL is the greater of a) the amount Medicare would pay, plus an additional 20%, or b) the provider’s cost to provide the health care goods and services to the patients, as determined by the self-reported cost information provided by the provider plus an additional 12%. ELAP calls its role “Designated Decision Maker.” ELAP’s strategy is that “[t]he only way to pay less for healthcare, is to pay less for healthcare.”[1] ELAP tells its Plans that they can be treated by any medical provider in the country and that they will only be responsible for the ACL amount that ELAP instructs the Plan to pay.

         The dispute between the parties arises from the fact that ELAP has not signed a PPA with IHC, thus IHC does not recognize ELAP’s authority to decide the amount Plans should pay. When an ELAP Plan member receives treatment at an IHC facility, IHC bills the Plan, which then only pays the amount decided by ELAP. IHC then sends additional bills to Plans and Plan members to demand the outstanding balance owing on the bill. But the Plans refuse to pay, because ELAP instructs Plans and Plan members that they are not liable for “reimbursement in excess of what [the plan] has already paid.”[2] When IHC attempts to initiate collection proceedings on these outstanding bills, ELAP instructs the patient to notify ELAP. ELAP is then contractually obligated to appoint an attorney to represent the Plan member. If necessary, ELAP’s appointed attorney will institute litigation against IHC to prevent recovery.[3]

         ELAP-affiliated patients do not disclose that their insurance Plan is affiliated with ELAP when they are admitted to IHC hospitals. Thus, IHC cannot identify the patients before offering treatment. Nevertheless, IHC estimates that it has provided treatment to hundreds of ELAP-affiliated plan members who have accrued millions of dollars in unpaid charges. IHC alleges it has been unsuccessful in collecting any unpaid charges from ELAP patients.

         On December 1, 2017, IHC filed suit against ELAP asserting six claims for relief.[4]On February 12, 2018, ELAP filed a motion to dismiss IHC’s Complaint. On September 28, 2018, the court granted the motion in part, dismissing counts two through five for failure to state a claim and granting IHC leave to amend. See ECF No. 29 (the “Order”). On October 12, 2018, IHC filed its Amended Complaint asserting six nearly identical claims for relief: 1) Intentional Interference with Existing and Prospective Economic Relations (“Count 1”); 2) Unjust Enrichment (“Count 2”);[5] 3) Fraud (“Count 3”); 4) Negligent Misrepresentation (“Count 4”); 5) Declaratory Judgment (“Count 5”); and 6) Preliminary and Permanent Injunction (“Count 6”). On October 26, 2018, ELAP moved to dismiss Counts 2–5 for failure to state a claim. On November 16, 2018, ELAP filed its Answer and Counterclaim against IHC seeking 1) a Declaratory Judgment that IHC may not collect “excessive, unreasonable, and unconscionable” amounts under the Patient Agreements and 2) a Permanent Injunction preventing IHC from collecting “excessive, unreasonable, and unconscionable” amounts under the Patient Agreements. IHC then moved to dismiss ELAP’s counterclaims. Both motions are now before the court.

         II. LEGAL STANDARD

         ELAP and IHC both move under Fed.R.Civ.P. 12(b) to dismiss each other’s claims.[6] 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)). In contrast, 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.” The specialized 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); see also Order at 7.

         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).

         III. ELAP’S MOTION TO DISMISS

         A. Count 2: Unjust Enrichment

         In Utah, “[u]njust enrichment of a person occurs when he has and retains money or benefits which in justice and equity belong to another.” Baugh v. Darley, 184 P.2d 335, 337 (Utah 1947) (citations omitted). To prevail on a claim for unjust enrichment, a plaintiff must establish three elements:

(1) a benefit conferred on one person by another; (2) an appreciation or knowledge by the conferee of the benefit; and (3) the acceptance or retention by the conferee of the benefit under such circumstances as to make it inequitable for the conferee to retain the benefit without payment of its value.

Jeffs v. Stubbs, 970 P.2d 1234, 1248 (Utah 1998) (citations omitted). ELAP moves to dismiss IHC’s unjust enrichment claim on the grounds that ELAP did not receive a benefit from IHC and even if it did, ELAP did not appreciate the benefit. IHC argues that it does not have to be the one conferring the benefit on ELAP for ELAP to be unjustly enriched. IHC also argues that a benefit is conferred upon ELAP every time IHC treats an ELAP-contracted plan member because ELAP gets paid to audit the plan member’s medical bill with money that should be used to pay IHC. The court finds that IHC has not successfully alleged an actionable benefit and therefore grants ELAP’s motion to dismiss.

         A “benefit may be an interest in money, land, chattels, or choses in action; beneficial services conferred; satisfaction of a debt or duty owed . . .; or anything which adds to [one’s] security or advantage.” Baugh, 184 P.2d at 337. IHC correctly asserts that the benefit at issue does not necessarily have to be conferred by the plaintiff upon the defendant. Jeffs, 970 at 1248 (there must only be “a benefit conferred on one person by another.”). However, that benefit must “in justice and equity belong to another” to sustain a claim for unjust enrichment. Baugh, 184 P.2d at 337. For example, when a “defendant benefits incidentally” from “[s]ervices performed by the plaintiff for [the plaintiff’s] own advantage, ” the benefit is not “recoverable.” Id.

         In this case, IHC argues that ELAP benefits every time IHC treats an ELAP-Plan member whose Plan underpays because ELAP receives from the Plan money that should have been paid to IHC in accordance with the Patient Agreement “on a percentage fee tied to [IHC]’s charges.” In other words, the fee received by ELAP from its customers, the alleged “benefit, ” is money owed to IHC by the Plan under IHC’s Patient Agreement and is a benefit that would not be conferred upon ELAP absent IHC treating ELAP-Plan patients.

         There are two major defects with IHC’s argument. First, to the extent that IHC is claiming that it is owed money under an express contract, the Patient Agreement, its claim to that money cannot sustain a claim for unjust enrichment. See U.S. Fid. v. U.S. Sports Specialty, 270 P.3d 464, 468–69 (Utah 2012) (when there is an “express contract covering the subject matter of the litigation . . ., recovery for unjust enrichment is not available.” (citations omitted)). In Utah, unjust enrichment “is designed to provide an equitable remedy where one does not exist at law.” Id. at 468 (quoting Selvig v. Blockbuster Enters., LC, 266 P.3d 691, 698 (Utah 2011)). Thus, “the doctrine may be invoked ‘only ...


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