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Sullivan v. Laboratory Corporation of America Holdings

United States District Court, M.D. North Carolina

March 28, 2018

MICHELLE SULLIVAN and HOLDEN SHERIFF, individually and on behalf of all others similarly situated, Plaintiffs,



         This is a putative class action involving claims of unfair and deceptive conduct related to the billing practices of Defendant Laboratory Corporation of America Holdings (“LabCorp”). Before the court is LabCorp's motion to dismiss the complaint and strike class allegations. (Doc. 11.) The motion has been fully briefed (Docs. 12, 20, 23), and the court held argument on December 19, 2017. For the reasons set forth below, the motion to dismiss will be granted, which renders the motion to strike moot.

         I. BACKGROUND

         The allegations of the complaint, viewed in the light most favorable to Plaintiffs[1] as the non-moving parties, show the following:

LabCorp is a holding company of numerous subsidiaries that provides laboratory testing services to healthcare recipients internationally. (Doc. 1 ¶ 3.) It serves more than 110 million patients annually and has “generated more revenue from laboratory testing than any other company in the world.” (Id. ¶¶ 4, 36.) Its LabCorp Diagnostics segment is an independent clinical laboratory business that provides services that are the subject of Plaintiffs' complaint. (Id. ¶¶ 5, 6, 28.)

         LabCorp routinely charges different customers different rates for the same services. These rates include an undiscounted retail rate (which Plaintiffs call the “rack rate”); discounted rates LabCorp has negotiated with certain third-party payors, such as insurers; a standardized rate for Medicare clients; and rates that LabCorp negotiates with certain uninsured or underinsured individuals. (Id. ¶¶ 7, 38, 97.) These rates vary greatly but tend to be much higher for the uninsured and underinsured. (Id. ¶ 42.)

         Each Plaintiff is an insured who had testing performed by LabCorp and whose insurance did not cover some or all of the cost. The complaint is devoid of any allegation that either Plaintiff ordered her testing directly from LabCorp. Rather, at least one allegation suggests that a referring physician ordered the tests on behalf of her patient (Id. ¶ 10), and a sample LabCorp invoice for Plaintiff Holden Sheriff states, “This bill is for laboratory services requested by your physician.” (Doc. 20-1 at 2.) In any event, each Plaintiff was initially invoiced the rack rate for the tests not covered by insurance. (Doc. 1 ¶¶ 58, 68, 80, 92.) Plaintiffs are expected to pay this rate even though their insurers, or others, would have been charged a lesser amount for the same tests. (Id. ¶¶ 56-95.) Plaintiffs acknowledge they are liable to LabCorp for some cost, but they contend they should only have to pay the “fair market value of those specific tests” which “would be substantially similar to the rate the patient's insurer would have paid had the lab services been covered.” (Id. ¶ 164.)[2]

Plaintiff Michelle Sullivan is a California resident who had thirteen tests performed by LabCorp on October 4, 2016. (Id.) LabCorp invoiced her the aggregate rack rate for all tests, for a total of $992.25. (Doc. 1 ¶¶ 68-69.) The invoice did not disclose which tests were covered by her insurance, Independence Blue Cross, and, if so, how much the insurer paid for the covered tests. (Id. ¶ 71.) However, twelve of the thirteen tests were covered, [3]leaving Sullivan liable for the full rack rate of $132.00 for the uncovered test. (Id.) Sullivan has paid the balance, “in whole or in part, ” under protest. (Id. ¶ 75.)

         Plaintiff Sheriff is a Tennessee resident who had eighteen laboratory tests conducted by LabCorp on November 22, 2016, in Burlington, North Carolina. (Id. ¶¶ 78-81; Doc. 20-1 at 2.) LabCorp invoiced her the aggregate rack rate for the eighteen tests, for a total of $2, 988.00. (Doc. 1 ¶ 77.) As with Sullivan, the invoice did not state which tests were covered by her insurer, Cigna Corporation, and, if so, how much the insurer paid for the covered tests. (Id. ¶ 83.) Sheriff's insurance covered fifteen of the eighteen tests, [4] leaving her liable for the full rack rate of $1, 043.79 for the three uncovered tests. (Id. ¶ 81.) She has yet to pay her invoice. (Id. ¶ 87.)

         At no point before accepting the tests did either Plaintiff inquire as to the cost. (Id. ¶¶ 86, 94.) Instead, each assumed she would be charged “a reasonable amount.” (Id. ¶¶ 86, 94.) There is no allegation that Plaintiffs based their assumptions on any conduct or representation by LabCorp. Nor is there any indication of what information, if any, the health care providers who ordered tests on behalf of any Plaintiff knew about the cost and pricing policies of LabCorp, or whether any Plaintiff had any discussion with any provider about the same.

         Plaintiffs filed the present action on March 8, 2016. (Doc. 1.) They allege that LabCorp's practice of charging uninsured and underinsured customers multiples over the insured pricing, failure to disclose in advance the price of each test, and failure to itemize invoices to show how much of each test is covered by insurance confuse patients as to what they owe, constitute unfair and deceptive trade practices, and lie at the root of a national healthcare crisis. (Id. ¶ 2.) Each Plaintiff initially seeks recovery under the North Carolina Unfair and Deceptive Trade Practices Act (“UDTPA”), N.C. Gen. Stat. §§ 75-1, et seq. (Count I). Alternatively, each seeks recovery under her own state's law: Sullivan seeks recovery under the California Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1750, et seq. (Count III), and the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200, et seq. (Count IV); and Sheriff seeks recovery under the Tennessee Consumer Protection Act (“TCPA”), Tenn. Code §§ 47-18-101, et seq. (Count V). Both Plaintiffs also allege claims of implied contract and unjust enrichment (Count VII), as well as common law fraud (Count VIII).

         Plaintiffs seek to certify a national class on behalf of “all persons who were charged fees for services by LabCorp that were in excess of the negotiated or mandated fair value market rates established for those services between LabCorp and private or public health insurers.” (Id. ¶ 98.) To this extent, they rely on North Carolina's UDTPA (id. ¶¶ 115-123 (Count I)), as well as the law of implied contract and unjust enrichment (id. ¶¶ 162-168 (Count VII)) and “common law fraud” (id. ¶¶ 169-179 (Count VIII)), which they contend in their briefing should be that of North Carolina, too. Plaintiffs also seek to bring their action on behalf of two sub-classes for class members made up of the two states from which they hail and under that state's law: Tennessee and Maryland. (Id. ¶¶ 99, 104.) Plaintiffs seek a declaration that LabCorp has engaged in unlawful conduct, damages, a constructive trust, an injunction, and attorneys' fees. (Id. at 38.)

         LabCorp now moves to dismiss Plaintiffs' complaint for failure to state a claim upon which relief can be granted, and to strike class allegations. (Doc. 11.) The motion is fully briefed and ready for decision.

         II. ANALYSIS

         Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim.” Under Federal Rule of Civil Procedure 12(b)(6), however, “a complaint must contain sufficient factual matter ... 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)). A claim is plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Bell, Twombly, 550 U.S. at 556). A Rule 12(b)(6) motion to dismiss “challenges the legal sufficiency of a complaint considered with the assumption that the facts alleged are true.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th Cir. 2009) (citations omitted). If a complaint does not meet this standard, it should be dismissed.

         As noted, each plaintiff seeks recovery under North Carolina law and alternatively under her own state's law. The claims under North Carolina law will be addressed first, followed by the state-specific claims.

         A. North Carolina's UDTPA

         Though neither Plaintiff is a resident of North Carolina, Sullivan and Sheriff seek recovery in Count I under North Carolina's UDTPA. LabCorp contends that North Carolina law does not apply to these out-of-state Plaintiffs' claims. Alternatively, LabCorp argues that neither Plaintiff states a claim under the UDTPA. Plaintiffs contend there is sufficient connection to North Carolina to apply the state's law and that they have stated a claim under the act.

         Whether the UDTPA applies to Plaintiffs' claims raises a difficult question. The court applies the forum state's choice of law rules, New England Leather Co. v. Feuer Leather Corp., 942 F.2d 253, 255 (4th Cir. 1991), and claims under North Carolina's UDTPA are “neither wholly tortious nor wholly contractual in nature, ” Bernard v. Cent. Carolina Truck Sales, Inc., 68 N.C.App. 228, 230, 314 S.E.2d 582, 584 (1984) (quoting Slaney v. Westwood Auto, Inc., 366 Mass. 688, 704, 322 N.E.2d 768, 779 (1975)). North Carolina courts have split as to the proper choice of law rule to apply to a UDTPA claim. Stetser v. TAP Pharm. Prods., Inc., 165 N.C.App. 1, 15, 598 S.E.2d 570, 580 (2004); New England Leather Co., 942 F.2d at 255. At least one panel of the North Carolina Court of Appeals followed the traditional lex loci rule, holding that “the law of the state where the injuries are sustained should govern” UDTPA claims. See Stetser, 165 N.C.App. at 15, 598 S.E.2d at 580 (quoting United Va. Bank v. Air-Lift Assocs., Inc., 79 N.C.App. 315, 321, 339 S.E.2d 90, 93 (1986)). Another panel of that same court held much earlier that “the law of the state having the most significant relationship to the occurrence giving rise to the action” should apply. Id. (quoting Andrew Jackson Sales v. Bi-Lo Stores, Inc., 68 N.C.App. 222, 225, 314 S.E.2d 797, 799 (1984)). The North Carolina Supreme Court has not resolved this split of authority. See Window World of Baton, Rouge, LLC v. Window World, Inc., No. 15 CVS 1, 2017 WL 2979142, at *9 ( N.C. Business Ct. Jul. 12, 2017).

         The court need not delve into the lengthy analysis offered by the parties, however. That is because even assuming Plaintiffs were correct that North Carolina's UDTPA could apply to them as out-of-state consumers under the facts alleged, their claims would not survive the motion to dismiss because Plaintiffs fail to plausibly state a claim under the act.

         To establish a claim under North Carolina's UPDTA, a plaintiff must allege facts plausibly showing that (1) a defendant committed an unfair or deceptive act or practice, (2) which was in or affecting commerce, and (3) proximately caused injury to the plaintiff. Dalton v. Camp, 353 N.C. 647, 656, 548 S.E.2d 704, 711 (2001). An act or practice is unfair if it is “immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers, ” and is deceptive “if it has the capacity or tendency to deceive.” Ace Chem. Corp. v. DSI Transp., Inc., 115 N.C.App. 237, 247, 446 S.E.2d 100, 106 (1994) (internal citations and quotations omitted). Whether conduct constitutes an unfair or deceptive trade practice is a question of law for the court to decide. First Atl. Mgmt. Corp. v. Dunlea Realty Co., 131 N.C.App. 242, 252-53, 507 S.E.2d 56, 63 (1998).

         While North Carolina prohibits price gouging in the event of an emergency or an abnormal market disruption, N.C. Gen. Stat. § 75-38, the North Carolina Supreme Court has rejected a claim that excessive price alone can state a claim under the UDTPA. See Bumpers v. Cmty. Bank of N. Virginia, 367 N.C. 81, 92-93, 747 S.E.2d 220, 228-29 (2013) (noting that where there was no element of exigency, misrepresentation, or compulsion, high price alone did not violate the UDTPA). Rather, only where a customer was systematically charged more than what was contracted for and delivered has a North Carolina court found the practice unfair. Sampson-Bladen Oil Co. v. Walters, 86 N.C.App. 173, 356 S.E.2d 805 (1987) (finding unfair trade practice and affirming jury verdict where oil supplier systematically overcharged customer for two years for 2, 600 gallons of oil never delivered). Plaintiffs have not cited any North Carolina authority to the contrary.

         Here, neither Plaintiff argues that LabCorp took any action to induce her to order the testing or to mislead her, either affirmatively or by concealment, as to the price of the testing. Indeed, no Plaintiff claims to have even inquired as to price. Rather, Plaintiffs appear to have authorized their healthcare providers to order the testing they deemed professionally appropriate. No party has cited a North Carolina decision supporting the proposition that a service provider must disclose its price to a customer before rendering its service. The court's own review has found no such case, either. Thus, LabCorp was under no duty to volunteer its prices to patients who ordered testing through their physicians before performing laboratory testing. Cf. Chiarella v. United States, 445 U.S. 222, 228 (1980) (noting that at common law, fraud doctrine did not impose a duty to disclose in the absence of a fiduciary or other similar relation of trust and confidence); Langford v. Rite Aid of Alabama, Inc., 231 F.3d 1308, 1313-1314 (11th Cir. 2000) (rejecting claim that federal law obliges retailers to disclose pricing structure to consumers); Bonilla v. Volvo Car Corp., 150 F.3d 62, 71 (1st Cir. 1998) (also finding that federal law imposes no obligation on retailers to disclose their pricing structure to consumers, and rejecting fraud claim based on contention that car buyers would not have paid for accessories had they known the seller's mark-up was so high and the accessories so minor).

         Further, neither Plaintiff has made any claim of exigency or any circumstance that would have prevented her from inquiring about the price of her tests. Instead, both allege that they assumed that the prices of the tests they ordered would be reasonable, which they contend must be the rate charged to their insurers. (Doc. 1 ¶¶ 74, 86; Doc. 26 at 40 (arguing that the reasonable, fair market rate must be the insurance rate).)

         Thus, Plaintiffs' UDTPA claims rest on the contention that LabCorp's effort to charge anything more than its insured rates for uninsured tests rendered the invoices unfair and/or deceptive. But there can be nothing deceptive where there is no allegation that LabCorp represented anything to any Plaintiff about its rates. On the contrary, each Plaintiff relied on her assumption - not grounded in any alleged fact - that she would be charged an insured rate for all tests, even though neither knew what that was. And Bumpers ...

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