Court Denies Defendant’s Motion to Dismiss Civil RICO Claim Finding Plaintiff Sufficiently Alleged the Elements of a Civil RICO Offense

LD et al. v. United Behavorial Health et al., 2020 WL 732566 (N.D. Cal., Dec. 18, 2020)

The court denied United Behavorial Health’s (United) motion to dismiss, but granted, without prejudice, the Plaintiffs claims against co-defendant MultiPlan asserting that additional predicate acts by MultiPlan need to be alleged.  Plaintiffs alleged that defendants violated RICO Sections 1962(c) and 1962(d) by committing the predicate offenses of wire fraud and mail fraud in violation of 18 U.S.C. §§ 1341 and 1343.

Plaintiffs alleged that in furtherance of a scheme to defraud Defendants allegedly sent various forms of communication to plaintiffs as part of the scheme, such as VOB calls, EOBs, and PAD letters, which were misleading because they did not disclose that defendants had not or would not use a methodology for reimbursing the claims for IOP (intensive care services) services at issue that was consistent with the plan requirements.  Plaintiffs were injured by this alleged scheme because they were forced to pay the difference between the billed amount for the IOP services and the artificially low amounts that United reimbursed.  Plaintiffs further allege that the billed amounts for the IOP services they received were lower than the customary rates of similar IOP providers in the geographic region; because their plans required reimbursement of out-of-network IOP services based on the customary rates of similar IOP providers in the geographic region, their plans should have covered most, if not all, of the billed amounts. 


The court first addressed civil RICO standing under 18 U.S.C. § 1964(c), requiring a plaintiff must show: (1) that his alleged harm qualifies as injury to his business or property; and (2) that his harm was ‘by reason of’ the RICO violation,” i.e., the injury is the direct result” or “a foreseeable and natural consequence of” the alleged scheme.  Id. at *11, citing to Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 658 (2008). To determine whether an injury is too remote to allow recovery under RICO, courts apply the “following three-factor ‘remoteness’ test: (1) whether there are more direct victims of the alleged wrongful conduct who can be counted on to vindicate the law as private attorneys general; (2) whether it will be difficult to ascertain the amount of the plaintiff’s damages attributable to defendant’s wrongful conduct; and (3) whether the courts will have to adopt complicated rules apportioning damages to obviate the risk of multiple recoveries.” Id. at *11, citing case.

The Court concluded that the factors for RICO standing were satisfied here because a direct relation exists between the alleged RICO scheme and plaintiffs’ alleged harm, that is, Plaintiffs’ injury, which is in the form of plaintiffs’ payment of the amounts that United did not reimburse but should have reimbursed, directly flows from this alleged scheme.  Also, other typical factors also weigh in favor of this finding, such as, there is no risk of multiple recoveries because there are no other victims who were more directly injured than plaintiffs who are in a position to sue defendants. The fact plaintiffs did not allege first-party reliance does not alter this conclusion as Plaintiffs have plausibly alleged that someone in the chain of causation relied on United’s alleged misrepresentations.


An enterprise that is not a legal entity is commonly known as an ‘association-in-fact’ enterprise” and plaintiffs alleged new facts that raise the inference that defendants engaged in in an association-in-fact enterprise. The enterprise’s affairs existed for the common purpose of keeping the difference between the artificially low amounts that United reimbursed for the IOP claims and the amount at which the claims should have been reimbursed if the plan requirements had actually been followed by defendants.

Defendants’ argument that this was merely a routine contractual relationship with a goal of cost-containment is premature. The Court does not rule on the merits but on the plausibility of the allegations. Here, the FAC raises a plausible inference that the contractual relationship between defendants was used as a cover for their scheme to profit from the fraud at plaintiffs’ expense. That a legitimate contractual relationship between the defendants exists does not undermine plaintiffs’ plausible allegations that defendants also engaged in an enterprise to defraud them and used the contractual relationship as a cover. *13. 


The court found the “conduct” element of a Section 1962(c) claim satisfied as the FAC raised the inference that United and MultiPlan each had some part in directing the alleged enterprise’s affairs. Plaintiffs aver that United and MultiPlan collaborated to develop and use on an ongoing basis the Viant database and pricing tool to under-reimburse the IOP claims at issue, and that they did so for the purpose of advancing the enterprise’s goal of defrauding plaintiffs and profiting from the under-reimbursement of the IOP claims. Plaintiffs also aver that “United determined the fraudulent rates for underpayment that would be [falsely] presented as UCR,” FAC ¶ 119, raising the inference that, in addition to having a role in the operation of the alleged enterprise, United also had a role in its management. Further, and again, the fact that defendants had a contractual relationship is not determinative to the contrary.

Pattern of Racketeering Activity

In the FAC, plaintiffs have alleged some additional facts with respect to the communications by defendants that were allegedly fraudulent or misleading. However, an analysis of all the communications alleged reveals that only the VOB calls between plaintiffs’ provider, Summit Estate, and United took place before plaintiffs received the IOP services at issue. See FAC ¶¶ 255, 291, 322, 351, 378. Accordingly, only these communications could satisfy the reliance requirement for a RICO claim predicated on mail or wire fraud. See Bridge, 553 U.S. at 658 (holding that RICO plaintiff alleging mail or wire fraud must aver facts to show that “someone relied on the defendant’s misrepresentations”).

Although plaintiffs have not averred other details of these VOB calls, such as the names of the persons who participated in such calls or the dates of the calls, the Court finds that plaintiffs have alleged sufficient factual matter as to the circumstances constituting fraud so that United “can prepare an adequate answer from the allegations.”   Accordingly, plaintiffs have satisfied the element of pattern of racketeering with respect to United. With respect to MultiPlan, plaintiffs have not averred facts raising the reasonable inference that MultiPlan engaged in at least two acts of mail fraud or wire fraud upon which plaintiffs relied that constitute a pattern of racketeering activity.

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