Jerald Friedman v. Aarp, Inc.
2017 U.S. App. LEXIS 7845
| 9th Cir. | 2017

Background

  • Friedman, a Medicare beneficiary, bought a UnitedHealth Medigap policy that is offered through a group AARP plan; AARP is the group policyholder but is not itself an insurer or licensed to transact insurance in California.
  • AARP and UnitedHealth operate under a 1997 agreement requiring consumers who want UnitedHealth Medigap through AARP to enroll via AARP; AARP handles marketing, enrollment solicitation, premium collection (through an AARP Trust), and remittance to UnitedHealth.
  • AARP retains 4.95% of payments tied to the Medigap program; the parties variously labeled this payment an “allowance,” later a “royalty,” while Friedman alleges it is an undisclosed insurance commission collected in addition to the insurer’s premium.
  • Friedman sued as a putative class, alleging violations of California’s Unfair Competition Law (UCL) and common-law claims, principally that AARP transacted and solicited insurance without an insurance license in violation of Cal. Ins. Code § 1631, and that AARP’s characterization of the fee was deceptive.
  • The district court dismissed the complaint under Rule 12(b)(6), finding Friedman failed to plausibly allege that AARP solicited insurance or that the 4.95% was a commission; the Ninth Circuit reversed and remanded.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether AARP "transacts" insurance by retaining the 4.95% fee Friedman: the 4.95% is a commission on sales of insurance (not a royalty) and thus transacting insurance without a license AARP/UnitedHealth: the fee is a permissible royalty paid by UnitedHealth for use of AARP marks and not a commission tied to sales Held: Plausibly alleged as a commission at pleading stage; cannot dismiss—allegations support that AARP transacts insurance by collecting the fee
Whether AARP "solicits" insurance under the Insurance Code Friedman: AARP’s marketing, explicit "This is a solicitation of insurance" language, contractual obligation to solicit, and member communications amount to solicitation Defs: Marketing materials do not permit direct purchase or application; statements disclaiming that AARP is the insurer show lack of solicitation Held: Allegations plausibly show solicitation; ability to directly purchase is not dispositive; dismissal improper
Whether Friedman adequately pleaded UCL fraudulent and unfair prongs (deception and reliance) Friedman: labeling the fee a "royalty" and the trustee disclosures hid an extra commission; reasonable consumers likely to be deceived and reliance can be inferred Defs: Rates were regulator-approved; no deception; no actual reliance alleged Held: Pleadings sufficiently allege likely deception and material misrepresentation; reliance may be inferred—claims survive pleading stage
Whether the filed-rate doctrine bars the suit Friedman: not addressed to finality here; attacks structure/labeling of fee beyond merely contesting a filed rate Defs: Filed-rate doctrine precludes collateral attack on regulator-approved rates Held: Ninth Circuit declined to decide on appeal and remanded for district court to address it in the first instance

Key Cases Cited

  • Vencor Inc. v. Nat’l States Ins. Co., 303 F.3d 1024 (9th Cir. 2002) (describing AARP’s prominence in Medigap market)
  • Fed. Trade Comm’n v. AT&T Mobility LLC, 835 F.3d 993 (9th Cir. 2016) (standard of review for Rule 12(b)(6) motions)
  • Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
  • United States v. Corinthian Colls., 655 F.3d 984 (9th Cir. 2011) (consideration of documents incorporated by reference at pleading stage)
  • Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028 (9th Cir. 2009) (accept factual allegations as true on motion to dismiss)
  • Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013) (apply California substantive law in diversity)
  • People ex rel. Harris v. Pac Anchor Transp., Inc., 329 P.3d 180 (Cal. 2014) (scope of the UCL is broad)
  • Cel‑Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 973 P.2d 527 (Cal. 1999) (UCL coverage and interpretation)
  • Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152 (9th Cir. 2012) (disjunctive nature of UCL prongs)
  • Stevens v. Superior Court, 89 Cal. Rptr. 2d 370 (Ct. App. 1999) (Insurance Code as UCL predicate)
  • Wayne v. Staples, Inc., 37 Cal. Rptr. 3d 544 (Ct. App. 2006) (characterizing a retained fee as a percent-of-price commission)
  • In re Tobacco II Cases, 207 P.3d 20 (Cal. 2009) (actual reliance inference and materiality under UCL)
  • Reid v. Johnson & Johnson, 780 F.3d 952 (9th Cir. 2015) (reasonable consumer standard; motion to dismiss standards for deception claims)
  • Williams v. Gerber Prods. Co., 552 F.3d 934 (9th Cir. 2008) (rarely appropriate to decide reasonable consumer issue at pleading stage)
  • Chapman v. Skype, Inc., 162 Cal. Rptr. 3d 864 (Ct. App. 2013) (actual reliance inferred from misrepresentation)
  • MacKay v. Superior Court, 15 Cal. Rptr. 3d 893 (Ct. App. 2004) (filed-rate doctrine bars collateral attack on regulator-adopted rates)
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