AMERICAN DENTAL ASSOCIATION, in an associational capacity on behalf of its members, JOHN MILGRAM, DDS, SCOTT A. TRAPP, DDS, individually and on behalf of all other similarly situated, BYRON C. DESBORDES, Plaintiffs-Appellants, versus CIGNA CORPORATION, CONNECTICUT GENERAL LIFE INSURANCE COMPANY, CIGNA DENTAL HEALTH, INC., METLIFE, INC., METROPOLITAN LIFE INSURANCE COMPANY, MUTUAL OF OMAHA INSURANCE COMPANY, Defendants-Appellees.
No. 09-12033
United States Court of Appeals for the Eleventh Circuit
May 14, 2010
[PUBLISH] D. C. Docket Nos. 03-21266 CV-FAM, 00-1334-MD-FAM. FILED U.S. COURT OF APPEALS ELEVENTH CIRCUIT MAY 14, 2010 JOHN LEY CLERK.
(May 14, 2010)
DUBINA, Chief Judge:
The question presented in this appeal is whether, under
I. BACKGROUND
Plaintiffs are three dentists practicing in Illinois, Nebraska, and Maryland. The American Dental Association (“ADA“), a non-profit dental association headquartered in Chicago, also asserts representational standing on behalf of its members. The defendants/appellees are dental insurance companies: Cigna Corporation, Connecticut General Life Insurance Company, Cigna Dental Health, Inc., MetLife Inc., and Metropolitan Life Insurance Company (“Defendants“). Plaintiffs contracted with Defendants to provide dental services to Defendants’ members through dental service managed care plans. Plaintiffs now assert violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO“),
Plaintiffs filed this purported class action lawsuit in the Southern District of Florida in May 2003. The case was originally assigned to Judge Adalberto Jordan.
In February 2008, Judge Moreno denied all pending motions in the case with leave to re-file, and requested status reports. During the roughly two-year lull in activity in this case, the United States Supreme Court decided Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007). Although the district court had not ruled on the motion to dismiss the first amended complaint, Plaintiffs sought and received Defendants’ consent to file a motion seeking leave to file a second amended complaint.
On May 1, 2008, Plaintiffs filed their Second Amended Complaint, which is at issue in this appeal. The complaint contains six counts. Counts I-IV are federal RICO and RICO-related claims: RICO conspiracy under
On June 6, 2008, Defendants moved to dismiss Counts I-IV and VI of the Second Amended Complaint. They did not move to dismiss the breach of contract claim (Count V). After briefing, on February 11, 2009, the district court issued a written order granting the motion to dismiss without prejudice. The court held that all four RICO claims were deficiently alleged. Citing Twombly, the court held that Plaintiffs’ substantive RICO allegations “fail to set forth a violation of §
The district court, however, gave Plaintiffs a chance to file another amended complaint by February 26, 2009. It directed Plaintiffs to “conform with the pleading requirements announced in Twombly and applied by this Court in Solomon and Genord,” id. at *7, which are two cases also involved in the Managed Care MDL. See Solomon v. Blue Cross & Blue Shield Ass‘n, 574 F. Supp. 2d 1288 (S.D. Fla. 2008) (dismissing complaint for failure to state a claim under Twombly); Genord v. Blue Cross & Blue Shield of Mich., No. 07-21688-CIV, 2008 WL 5070149 (S.D. Fla. Nov. 24, 2008) (same). The court warned that similar failure to comply with the new pleading standard would result in dismissal with prejudice. In re Managed Care Litig., 2009 WL 347795, at *8.
On February 23, 2009, Plaintiffs sought an extension of time to file a third amended complaint. On February 24, 2009, the district court denied that motion, stating:
Given the history of this particular case and the consistent insufficiencies of the Plaintiffs’ allegations, the Court would likely have had sufficient justification to dismiss Counts I-IV and VI of the Second Amended Complaint with prejudice. Because the plaintiffs are operating under newer, more stringent pleading requirements, the Court decided to afford them one last bite at the proverbial apple. . . . At this point, the factual averments necessary to satisfy Twombly are either readily included in yet another amended complaint, or simply do not exist.
D.E. 143, at 2. Plaintiffs never filed a third amended complaint. On March 2, 2009, the district court dismissed Counts I-IV and VI with prejudice. The district court entered a final order on March 23, 2009, declining to exercise supplemental jurisdiction over Count V and dismissing the case in its entirety. Plaintiffs now appeal the dismissal of the RICO and RICO-related claims in their complaint.
II. STANDARD OF REVIEW
“We review de novo the district court‘s grant of a motion to dismiss under
III. DISCUSSION
A. Twombly and Iqbal
Because the present case reflects the concerns that motivated the Supreme Court to adopt a new pleading standard in Twombly and Iqbal, a brief discussion of those decisions is warranted.
In Twombly, the plaintiffs alleged an antitrust conspiracy among certain regional telecommunications providers in violation of the Sherman Act,
While a complaint attacked by a
Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff‘s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.
Id. at 555, 127 S. Ct. at 1964–65 (internal quotation marks, citations, and alterations omitted). The Court explained that “[f]actual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id. at 555, 127 S. Ct. at 1965. The Court ultimately held that to survive a motion to dismiss, a complaint must now contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible on its face.” Id. at 570, 127 S. Ct. at 1974. Cautioning that its new plausibility standard is not akin to a “probability requirement” at the pleading stage, the Court nonetheless held that the standard “calls for enough fact to raise a reasonable expectation that discovery will reveal evidence” of the claim. Id. at 556, 127 S. Ct. at 1965. The Court was careful to note that “we do not require heightened fact pleading of specifics,” but concluded that when plaintiffs “have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed.” Id. at 570, 127 S. Ct. at 1974. Finding that the plaintiffs’ complaint did not plausibly suggest an illegal conspiracy by merely alleging parallel conduct—because such parallel conduct was more likely explained by lawful, independent market behavior—the Court held that the district court properly dismissed the complaint. Id. at 567–70, 127 S. Ct. at 1972–74.
The Supreme Court has since applied the Twombly plausibility standard to another civil action, Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937 (2009). Iqbal involved a Bivens action brought by a Muslim Pakistani who had been arrested and detained following the September 11, 2001, terrorist attacks. Id. at 1943. He sued current and former federal officials, including John Ashcroft, former Attorney General of the United States, and Robert Mueller, the Director of the FBI. Id. at 1942. Iqbal alleged that Ashcroft and Mueller adopted and implemented a detention policy for persons of high interest after September 11, and that they designated him a person of high interest on account of his race, religion, or national origin, in violation of the First and Fifth Amendments to the Constitution. Id. at 1944. Iqbal‘s complaint alleged that Ashcroft was the “principal architect” of the policy and identified Mueller as “instrumental in [its] adoption, promulgation, and implementation,” but also stated that both men “knew of, condoned, and willfully
In evaluating the sufficiency of Iqbal‘s complaint in light of Twombly‘s construction of
Applying these principles to Iqbal‘s complaint, the Court began by disregarding as wholly conclusory Iqbal‘s allegations that Mueller was “instrumental” in adopting the detention policy and Ashcroft was the “principal architect” of the policy, and that they willfully agreed to subject Iqbal to harsh treatment for a discriminatory purpose. Id. at 1951. The Court then determined that the remaining factual allegations—that Mueller and Ashcroft approved the FBI‘s policy of arresting and detaining thousands of Arab Muslim men as part of its investigation into the events of September 11—did not plausibly establish the purposeful, invidious discrimination that Iqbal asked the Court to infer. Id. at 1951–52. The alternative inferences that could be drawn from the facts—namely, that the arrests were likely lawful and justified by a nondiscriminatory intent to detain aliens who were illegally present in the United States and who had potential connections to those who committed terrorist acts—were at least equally compelling. Id. Accordingly, the Court ruled that Iqbal‘s complaint must be dismissed. Id. at 1954.
With this precedent in mind, we now turn to the RICO allegations in Plaintiffs’ Second Amended Complaint.
B. Plaintiffs’ Allegations of the Predicate Acts of a Pattern of Racketeering Activity under 18 U.S.C. § 1962(c)
Section 1962(c) of the RICO statutes requires that a plaintiff prove that a defendant participated in an illegal enterprise “through a pattern of racketeering activity.”
Because Plaintiffs’ section 1962(c) claim is based on an alleged pattern of racketeering consisting entirely of the predicate acts of mail and wire fraud, their substantive RICO allegations must comply not only with the plausibility criteria articulated in Twombly and Iqbal but also with
Plaintiffs’ complaint alleges that “[d]efendants represented in their on-line advertising, in their provider agreements and in their fee schedules that their in-network providers would be compensated for covered procedures based on commonly accepted dental practice, standard coding practice and Defendants’ fee schedules.” D.E. 111, at ¶ 28. Plaintiffs argue that these advertisements, agreements, and fee schedules were fraudulent because they indicated benefits payments lower than what Plaintiffs believed were due to them under their fee-for-service agreements with Defendants, which Plaintiffs argue had promised them timely specified payments “in accordance with standard dental coding procedures.” D.E. 111, at ¶ 24. In other words, Plaintiffs contend that they performed multiple procedures worthy of multiple or larger benefits payments, but that Defendants bundled and downcoded the procedures into fewer claims worthy of smaller payments. Additionally, Plaintiffs allege that the only way the alleged scheme of downcoding and bundling claims could work is if Defendants “agree[d]” to employ the “same” devices and tactics. D.E. 111, at ¶ 9. Thus, Plaintiffs do not allege parallel schemes among competing dental insurers; they allege a single scheme consisting of identical conduct in which all Defendants agreed to participate. Therefore, not only did Plaintiffs need to plausibly and particularly allege facts showing related instances of mail and wire fraud, but also plausibly allege facts showing that a conspiracy created the alleged scheme.
Though the complaint sets out at least six examples of e-mail and letter communications between Defendants and Plaintiffs, including online advertisements, fee schedules, contracts, and Explanations of Benefits (“EOBs“) documents, D.E. 111, at ¶¶ 28–33, 49–56, Plaintiffs do not point to a single specific misrepresentation by Defendants regarding how Plaintiffs would be compensated in any of these communications,
For example, Plaintiffs do not allege any misrepresentations in the EOBs because Plaintiffs allege in their complaint that the EOBs expressly informed Plaintiffs when their claims were going to be bundled or downcoded and gave the reasons for doing so. See D.E. 111, at ¶ 56 (“All Defendants have similarly engaged in bundling and downcoding practices by noting on EOBs . . . that ‘services are not covered when billed with related primary procedures,’ ‘benefits are not provided for this service as it is considered to be a part of, and inclusive to, the primary services performed,’ or that, ‘based on information reported or in file, a different procedure code has been assigned.‘“). Plaintiffs have not shown how they were misled by the EOBs if the language in the EOBs notified them about any bundling or downcoding of particular procedures.
Nor does the complaint allege any misrepresentations in the online advertisements. There are no allegations anywhere that the quoted language of the advertisements is false. Read as a whole, they amount at most to puffery, not fraud. See Byrne v. Nezhat, 261 F.3d 1075, 1111 (11th Cir. 2001) (noting that claims of surgical success in medical journals “seem more akin to puffing than actionable misrepresentations,” in dismissing a civil RICO complaint alleging violations of section 1962(c) predicated on acts of mail fraud). Additionally, Plaintiffs make no allegations as to who, if anyone, read the advertisements and was misled by them.
Further, the complaint does not connect the allegedly fraudulent communications to any particular acts of bundling or downcoding that Plaintiffs find unacceptable. Counsel for Plaintiffs stated at oral argument that this lack of particularity should be excused because they were at an “informational disadvantage” as to exactly how Defendants’ software bundled and downcoded submitted procedures. To the contrary, we think it telling that the three named plaintiffs, Drs. Milgram, Trapp, and Desbordes, each received EOBs explaining the reimbursement of specific procedures they had performed, yet the complaint never offers any examples of which claims were bundled and downcoded. Perhaps the closest Plaintiffs come to alleging a specific instance of fraud is in paragraph 49 of the complaint, where they allege that “[d]efendants regularly sent EOBs [to Plaintiffs] that inappropriately and automatically bundled x-ray procedures with other procedures.” D.E. 111, at ¶ 49. However, Plaintiffs do not allege other procedures with which the x-ray codes were bundled. This is at most an allegation of possible parallel conduct without any allegation of an agreement as to how Defendants would process x-ray billing codes as part of a greater scheme. In fact, Plaintiffs do not allege how Defendants agreed to employ any of these procedures as part of a long-term criminal enterprise predicated on acts of mail and wire fraud. Simply specifying particular dates and contents of communications cannot
In sum, the Second Amended Complaint does not plausibly, under Twombly, or particularly, under
C. Plaintiffs’ Allegations of Conspiracy under 18 U.S.C. § 1962(d)
Section 1962(d) of the RICO statutes makes it illegal for anyone to conspire to violate one of the substantive provisions of RICO, including § 1962(c).
Here, the allegations in Plaintiffs’ complaint do not support an inference of an agreement to the overall objective of the conspiracy or an agreement to commit two predicate acts. In analyzing the conspiracy claim under the plausibility standard, Iqbal instructs us that our first task is to eliminate any allegations in Plaintiffs’ complaint that are merely legal conclusions. 129 S. Ct. at 1950. Plaintiffs offer conclusory statements such as “[d]efendants have not undertaken the above practices and activities in isolation, but instead have done so as part of a common scheme and conspiracy,” D.E. 111 at ¶ 67, and “[e]ach Defendant and member of the conspiracy, with knowledge and intent, agreed to the overall objective of the conspiracy, agreed to commit acts of fraud to relieve Class Plaintiffs of their rightful compensation,
After eliminating the wholly conclusory allegations of conspiracy, we turn to Plaintiffs’ remaining factual allegations. Plaintiffs attempt to bolster their conspiracy allegations by describing the following “collective” or parallel actions taken by Defendants, from which they now argue the existence of an agreement may be inferred: the collective development and use of automated processes to manipulate CDT codes, i.e. downcoding and bundling; the use of the same claims procedures, including the data that dentists are required to provide in submitting claims, the forms on which dentists must submit their data, and the coding that dentists use to submit their data; and Defendants’ participation in trade associations and private, jointly owned partnerships and corporations. D.E. 111, at ¶¶ 70–71. Assuming for the sake of argument that parallel conduct has actually been alleged here,4 and accepting these factual allegations as true, as we are required to do under Iqbal, see 129 S. Ct. at 1950, we think that the Supreme Court‘s holding in Twombly forecloses any possibility that Plaintiffs’ allegations of parallel conduct plausibly suggest a conspiracy. The Court stated in Twombly that “when allegations of parallel conduct are set out . . . they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.” 550 U.S. at 557, 127 S. Ct. at 1966. The Court held that allegations of parallel conduct, accompanied by nothing more than a bare assertion of a conspiracy, do not plausibly suggest a conspiracy, stating that “without that further circumstance
the minds, an account of a defendant‘s commercial efforts stays in neutral territory.” Id.5
These conclusions are especially true where, as here, there is an “obvious alternative explanation” for each of the collective actions alleged that suggests lawful, independent conduct. See Twombly, 550 U.S. at 568, 127 S. Ct. at 1972 (finding that industry developments provided a “natural explanation” for defendants’ alleged conduct that helped to foreclose plaintiffs’ suggestion of conspiracy); Iqbal, 129 S. Ct. at 1951–52 (finding that though some of the plaintiff‘s allegations were “consistent with” purposeful discrimination, the complaint as a whole supported a plausible and legitimate motive by law enforcement officers to protect the nation from “suspected terrorists“). As for Plaintiffs’ allegation that Defendants downcoded and bundled some submitted claims, insurance companies must use computers and software to efficiently process claims, and the use of downcoding and bundling may be proper in order to decrease physicians’ costs and potentially increase profits. See In re Managed Care Litig., 430 F. Supp. 2d 1336, 1348 (S.D. Fla. 2006), aff‘d sub nom. Shane v. Humana, Inc., 228 F. App‘x 927 (11th Cir. 2007) (unpublished). In fact, Plaintiffs’ brief only decries the use of “improper” bundling, which implies that some bundling of claims is commonly acceptable. Brief of Appellant at 1. Additionally, the Department of Health and Human Services has taken the position that the inverse processes of “upcoding” and “unbundling” are fraudulent billing practices under Medicare, which supports the use of automated claims processing systems. See Medicare at Risk: Emerging Fraud in Medicare Programs: Hearing Before the Senate Committee on Governmental Affairs, Permanent Subcommittee on Investigations, 105th Cong. (1997) (statement of Michael F. Mangano, Principal Deputy Inspector General, U.S. Department of Health and Human Services), available at http://www.hhs.gov/asl/testify/t970626b.html. The use of automated systems that bundle and downcode may just as easily have developed from independent action in a competitive environment as it would from an illegal conspiracy, because each insurer would have an economic interest in decreasing physicians’ costs and increasing profits. See In re Managed Care Litig., 430 F. Supp. 2d at 1348. The complaint does not plausibly suggest that by using similar methods to downcode and bundle claims, Defendants have acted in any way inconsistent with the independent pursuit of their own economic self-interest. Accordingly, Defendants’ parallel conduct is equally indicative of rational independent action as it is concerted, illegitimate conduct and thus “stays in neutral territory.” See Twombly, 550 U.S. at 557, 127 S. Ct. at 1966.
As for Plaintiffs’ allegation that a conspiracy may be inferred from Defendants’ participation in trade associations and other professional groups, it was well-settled before Twombly that participation in trade organizations provides no indication of conspiracy. Twombly, 550 U.S. at 567 n.12, 127 S. Ct. 1971 n.12; see also Consol. Metal Prods., Inc. v. Am. Petroleum Inst., 846 F.2d 284, 293–94 (5th Cir. 1988) (“A trade association by its nature involves
Plaintiffs have not plausibly alleged sufficient facts regarding Defendants agreement with other entities or persons to engage in the ongoing criminal conduct of an enterprise. Plaintiffs’ allegations of Defendants’ parallel conduct, absent a plausibly-alleged “meeting of the minds,” fail to “nudge[] their claims across the line from conceivable to plausible.” See Twombly, 550 U.S. at 557, 570, 127 S. Ct. at 1966, 1974. Accordingly, we conclude that the district court did not err in dismissing the RICO conspiracy claim in the Second Amended Complaint.6
This court has not expressly stated such a rule. In Jackson v. Bellsouth Telecomm., 372 F.3d 1250 (11th Cir. 2004), we affirmed the dismissal of a RICO conspiracy claim because the complaint failed to allege a substantive RICO claim, but we emphasized that “the RICO conspiracy [claim] add[ed] nothing” because it “simply conclude[d] that the defendants ‘conspired and confederated’ to commit conduct which in itself does not constitute a RICO violation.” Id. at 1269. In an unpublished opinion, we characterized our holding in Jackson as follows: “where a plaintiff fails to state a RICO claim and the conspiracy count does not contain additional allegations, the conspiracy claim necessarily fails.” Rogers v. Nacchio, 241 F. App‘x 602, 609 (11th Cir. 2007) (citing Jackson, 372 F.3d at 1269) (emphasis added). Unlike in Jackson, Plaintiffs’ conspiracy count contains additional allegations, separate from the allegations in the substantive RICO count. Accordingly, there appears to be no controlling authority in our circuit or in the Supreme Court instructing us to adopt the reasoning of our sister circuits and dismiss Plaintiffs’ conspiracy claim because the substantive RICO claim was deficiently alleged. See also Beck v. Prupis, 529 U.S. 494, 506 n.10, 120 S. Ct. 1608, 1616 n.10 (2000) (expressly declining to resolve whether a plaintiff suing under section 1964(c) for a RICO conspiracy must allege an actionable violation under section 1962(a)–(c)). Because Plaintiffs’ conspiracy count fails to state a claim under Twombly and Iqbal‘s plausibility standard, we find it unnecessary to decide in this case whether Plaintiffs’ conspiracy claim must also fail because of the deficiencies in the substantive RICO count.IV. CONCLUSION
The RICO allegations in Plaintiffs’ Second Amended Complaint “stop[] short of the line between possibility and plausibility.” See Twombly, 550 U.S. at 557, 127 S. Ct. at 1966. As explained above, Plaintiffs failed to sufficiently plead a pattern of racketeering activity predicated on a scheme to commit acts of mail and wire fraud. Plaintiffs also failed to plausibly allege a conspiracy to commit RICO violations, as they merely offered conclusory allegations of agreement accompanied by statements of parallel behavior, which just as easily suggest independent, lawful action. For the aforementioned reasons, we affirm the district court order dismissing Plaintiffs’ RICO and RICO-related claims for failure to state a claim.7
AFFIRMED.