GOTHAM CITY ORTHOPEDICS, LLC v. UNITED HEALTHCARE INS. CO.
2:21-cv-11313
| D.N.J. | Jan 12, 2022Background
- Gotham City Orthopedics, an out-of-network New Jersey surgical practice, obtained pre-approval from United Healthcare for seven surgeries performed on United-insured patients.
- After performing the surgeries and billing United, Gotham received payments averaging about 22% of billed charges.
- Gotham alleges the pre-approval communications created an independent obligation for United to reimburse Gotham at out-of-network rates.
- Gotham sued in New Jersey state court asserting (relevant) Counts: implied-in-fact breach of contract (Count 1), breach of the implied covenant of good faith and fair dealing (Count 2), promissory estoppel (Count 3), and negligent misrepresentation (Count 5); other counts were dropped or dismissed.
- United removed the case to federal court and moved to dismiss under Rule 12(b)(6), arguing ERISA preemption and that the claims fail to state a claim.
- The Court denied dismissal as to Counts 1, 3, and 5, but granted dismissal as to Count 2; it held none of the surviving state-law claims were facially preempted by ERISA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| ERISA preemption of state-law claims | Gotham: claims arise from an independent insurer-provider pre-approval and do not depend on patients’ ERISA plans | United: claims ‘relate to’ ERISA plans and thus are preempted because adjudication would require looking to plan terms | Court: not preempted — follows Plastic Surgery Ctr.; claims enforce obligations independent of the plans and require at most cursory plan review |
| Existence of an implied-in-fact contract (Count 1) | Gotham: pre-approval communications created a mutual obligation by United to reimburse at out-of-network rates | United: no clear contract terms or mutuality; no long-standing relationship | Court: pleaded sufficiently to infer an implied contract at the motion-to-dismiss stage; denial of dismissal |
| Breach of the implied covenant of good faith and fair dealing (Count 2) | Gotham: United’s conduct in denying full payment breached the covenant | United: allegations only show an ordinary breach, not bad-faith or inequitable conduct | Court: dismissed — allegations do not go beyond ordinary breach to show bad faith |
| Promissory estoppel (Count 3) | Gotham: United made a clear, definite promise in pre-approval to reimburse at out-of-network rates and Gotham relied to its detriment | United: no clear and definite promise was made | Court: pleaded sufficiently; denial of dismissal |
| Negligent misrepresentation (Count 5) | Gotham: United’s pre-approval statements that Gotham would be paid at out-of-network rates were false and justifiably relied upon | United: Gotham hasn’t identified a false statement | Court: pleaded sufficiently in the alternative to contract/estoppel; denial of dismissal |
Key Cases Cited
- Plastic Surgery Ctr., PA v. Aetna Life Ins. Co., 967 F.3d 218 (3d Cir.) (out-of-network provider claims against insurer not preempted where obligations arise independent of ERISA plans)
- Aetna Health Inc. v. Davila, 542 U.S. 200 (U.S. 2004) (ERISA’s broad preemption of state laws relating to employee benefit plans)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility pleading standard under Rule 8)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (application of Twombly plausibility standard to complaints)
- Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (U.S. 1983) (tests for when state law "relates to" ERISA plans)
- Baer v. Chase, 392 F.3d 609 (3d Cir.) (implied contract may be inferred from parties’ conduct)
- Black Horse Lane Assocs., L.P. v. Dow Chem. Corp., 228 F.3d 275 (3d Cir.) (limitations on breach of implied covenant claim requiring bad-faith or inequitable conduct)