United States District Court, M.D. North Carolina
SHERYL ANDERSON, MARY CARTER, TENA DAVIDSON, ROBERT HUFFSTUTLER, RAMZI KHAZEN, CHAIM MARCUS, LILY MARTYN, JONAH MCCAY, HOLDEN SHERIFF, VICTORIA SMITH, MICHELLE SULLIVAN, SHONTELLE THOMAS, JOSEPH WATSON, and MICHAEL WILSON, individually and on behalf of all others similarly situated, Plaintiffs,
LABORATORY CORPORATION OF AMERICA HOLDINGS, Defendant.
MEMORANDUM OPINION AND ORDER
D. SCHROEDER, CHIEF DISTRICT JUDGE
putative class action challenging the billing practices of
Defendant Laboratory Corporation of America Holdings
(“LabCorp”) returns to the court on LabCorp's
motion to dismiss Plaintiffs' amended complaint or
alternatively to strike its class allegations. (Doc. 45.) For
the reasons set forth below, the motion to dismiss will be
granted in part and denied in part, and the motion to strike
will be denied.
allegations of the 555-paragraph amended complaint, viewed in
the light most favorable to Plaintiffs as the non-moving
parties, show the following:
provides laboratory testing services to healthcare recipients
internationally. (Doc. 42 ¶ 1.) It has more than 115
million patient encounters annually and has “generated
more revenue from clinical lab testing services than any
other company in the world.” (Id.) Its
“LabCorp Diagnostics” segment is an independent
clinical laboratory business that provides the services that
are the subject of Plaintiffs' amended complaint.
(Id. ¶¶ 44-45.) LabCorp's customers
are managed care organizations, biopharmaceutical companies,
governmental agencies, physicians and other healthcare
providers, hospitals, employers, patients, and consumers.
(Id. ¶ 47.)
routinely charges different customers different rates for the
same services. These rates include an undiscounted retail
rate, which Plaintiffs variously term the “fee schedule
rate, ” “list price, ” and
“chargemaster rate” (hereinafter, “list
price”); the 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. ¶¶ 41, 48-49, 70-71, 87,
211.) These rates vary greatly, but the list prices tend to
be much higher than the other rates. (Id.
¶¶ 5, 469.)
are fourteen Plaintiffs. (Id. ¶¶ 23-36.)
Their common complaint is that they were provided services by
LabCorp for which they were charged the list price, which
they allege is grossly too high, without any prior agreement
as to price. Some Plaintiffs - Michelle Sullivan, Mary
Carter, and Chaim Marcus - arranged for their diagnostic
testing at a LabCorp facility, presumably in their states of
residence, California, Maryland, and New Jersey,
respectively. (Id. ¶¶ 24, 28, 33,
149, 227, 323.) Others, including Tena Davidson (resides in
Florida), Shontelle Thomas (resides in Tennessee), and Lily
Martyn (resides in New York but had services performed in
North Carolina), authorized their physicians to order
laboratory testing without knowing what lab would do the
work. (Id. ¶¶ 168-170, 240-42, 345-47.)
Still others, including Sheryl Anderson (resides in Alabama)
and Ramzi Khazen (resides in Texas), had blood drawn by their
health care providers who sent the specimens to LabCorp
without advising either Plaintiff that the sample was being
sent to any laboratory testing company. (Id.
¶¶ 121-25, 203-05.) At the time the services were
rendered, none of these Plaintiffs had an express agreement
with LabCorp to pay the list prices LabCorp subsequently
charged. (Id. ¶ 111.) Most
Plaintiffs had health insurance, but the relevant testing
performed by LabCorp was not covered by their policies;
Martyn and Thomas were uninsured. (Id. ¶¶
122, 148, 167, 176, 203, 225-26, 239, 253, 278, 297, 322,
344, 360, 379.) As a result, Plaintiffs were charged
LabCorp's list prices. Some Plaintiffs paid the charges
under protest, while others have refused to pay.
amended complaint expands on the original complaint in this
case that made similar allegations. On March 28, 2018, the
court granted LabCorp's motion to dismiss the original
complaint in a memorandum opinion and order finding that the
allegations failed to state a claim upon which relief could
be granted. See Sullivan v. Lab. Corp. of Am.
Holdings, No. 1:17cv193, 2018 WL 1586471 (M.D. N.C. Mar.
28, 2018). On August 10, 2018, after the court granted leave,
Plaintiffs filed an amended complaint. (Doc. 42.) The amended
complaint brings eleven claims, each on behalf of a putative
class. In Count I, Plaintiffs seek a declaratory judgment
that they never contractually assented to LabCorp's list
prices, and therefore that LabCorp's right of recovery
against them for the relevant laboratory testing services is
limited to an implied-contract recovery of the
“reasonable value” of the services rendered.
(Id. ¶¶ 466-68.) Further, Plaintiffs seek
a declaration that LabCorp's list prices exceed the
“reasonable value” of its services. (Id.
¶ 470.) In Count II, as to all Plaintiffs who paid
LabCorp's list prices, Plaintiffs seek to recoup the
amounts they paid above the “reasonable value” of
the services rendered. (Id. ¶¶ 480-82.) In
Counts III-XI, Plaintiffs allege that LabCorp's billing
practices violate various consumer protection statutes
prohibiting unfair or deceptive trade practices in North
Carolina, Alabama, California, Florida, Maryland, New Jersey,
Tennessee, and Texas.
now moves to dismiss the amended complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6), largely on the
basis that Plaintiffs have failed to correct the defects of
the original complaint, as laid out in the court's
previous memorandum opinion and order in this case.
Plaintiffs contend in response that they have rectified any
defects in the original complaint by recharacterizing their
implied-contract theory, adding a declaratory judgment claim,
and backing off their earlier insistence that the
“reasonable value” of LabCorp's services is
necessarily the rates LabCorp negotiates with insurers. The
court held argument on July 16, 2019, and the motion is ready
Motion to Dismiss
order to survive a Rule 12(b)(6) challenge, “a
complaint must contain sufficient factual matter, accepted as
true, 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 has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable, ” demonstrating “more than a
sheer possibility that a defendant has acted
Implied-Contract Declaratory Judgment Claim
amended complaint, Plaintiffs “seek a declaratory
judgment  that a contract implied-in-law (also
referred to as a quasi-contract . . .) or a contract
implied-in-fact with an omitted essential term (price) exists
between LabCorp and each Plaintiff and Class
member.” (Doc. 42 ¶ 467 (emphasis
omitted).) In its briefing, LabCorp starts its attack on this
claim with the assumption that the court “has already
held [in its memorandum opinion and order dismissing
Plaintiffs' original complaint] that Plaintiffs cannot
state a claim using the law of quasi-contract.” (Doc.
46 at 10.) LabCorp proceeds to argue that Plaintiffs'
implied-in-fact contract theory also fails because
“North Carolina law requires a meeting of the minds for
formation of a valid and enforceable agreement, ” (id.
at 13 (emphasis omitted)) and Plaintiffs have admitted that
“there was no mutual agreement or intent to promise
between LabCorp and any Plaintiff . . . prior or subsequent
to the performance of the clinical lab testing services at
issue herein.” (Doc. 42 ¶ 466.) Moreover, argues
LabCorp, to the extent there ever could have been any
agreement on price, it could only have been on the list price
LabCorp always charges to consumers in Plaintiffs'
position. Plaintiffs contend that it is possible
to have an implied-in-fact contract absent agreement on
price, and that the remedy for a breach of such an
implied-in-fact contract is the “reasonable value of
the services” contracted for. Ellis Jones, Inc. v.
W. Waterproofing Co., Inc., 312 S.E.2d 215, 218 ( N.C.
Ct. App. 1984). Plaintiffs conclude that
“LabCorp is entitled only to the reasonable value of
its services regardless of whether a contract implied-in-law
(a quasi-contract), or a contract implied-in-fact with an
open price term governs.” (Doc. 47 at 16.)
similarity in nomenclature between implied-in-fact and
implied-in-law contracts belies a significant doctrinal
distinction in North Carolina law. An implied-in-fact
contract “exists by virtue of the parties' conduct,
rather than in any explicit set of words.” Kiousis
v. Kiousis, 503 S.E.2d 437, 440 ( N.C. Ct. App. 1998).
“However, although its terms may not be expressed in
words, or at least not fully in words, the legal effect of an
implied in fact contract is the same as that of an express
contract in that it too is considered a real contract or
genuine agreement between the parties.” Id.
(internal quotation marks omitted). Unlike implied-in-fact
contracts, “[a] quasi contract or a contract implied in
law is not a contract. The claim is not based on a promise
but is imposed by law to prevent an unjust enrichment.”
Booe v. Shadrick, 369 S.E.2d 554, 556 ( N.C. 1988).
“In order to establish a claim for unjust enrichment in
North Carolina, a plaintiff must show that ‘(1)
plaintiff conferred a measurable benefit to defendant, (2)
defendant knowingly and voluntarily accepted the benefit, and
(3) the benefit was not given gratuitously.'”
Sullivan, 2018 WL 1586471, at *6 (quoting TSC Research
LLC v. Bayer Chems. Corp., 552 F.Supp.2d 534, 540 (M.D.
N.C. 2008)). Under the doctrine of quantum meruit, “the
measure of damages for unjust enrichment is the reasonable
value of the goods and services to the defendant.”
Booe, 369 S.E.2d at 556; see also Forsyth Cty. Hosp.
Auth., Inc. v. Sales, 346 S.E.2d 212, 214 ( N.C. Ct.
App. 1986) (“Failure to agree on the amount of
compensation entitles the physician to the reasonable value
of his services . . . .”).
LabCorp has not shown that Plaintiffs failed to plausibly
plead a declaratory judgment claim based on principles of
quasi-contract, the court need not reach the parties'
extensive arguments regarding implied-in-fact contract
doctrine. LabCorp's argument as to
Plaintiffs' request for a declaratory judgment that
LabCorp's remedy is limited to a quasi-contract theory of
recovery is conclusory and does not address whether
Plaintiffs have met the three-factor test for unjust
enrichment laid out above. Instead, LabCorp merely asserts
that the court “has already held that Plaintiffs cannot
state a claim using the law of quasi-contract.” (Doc.
46 at 10); see also (id. at 12, 14-15). This is not the case.
Nowhere in its rejection of Plaintiffs'
“affirmative claim against LabCorp to recoup alleged
overpayments based on application of the measure of damages
for unjust enrichment, ” Sullivan, 2018 WL 1586471, at
*7, did the court state that Plaintiffs could not appeal to
the law of quasi-contract on some other type of claim.
court's prior opinion cited two grounds for rejecting
Plaintiff's quasi-contract recoupment claim. First, the
court found that North Carolina courts have only applied
unjust enrichment doctrine to situations where a
“plaintiff provided something to the defendant for
which the defendant did not fully pay” - not situations
where a plaintiff pays a defendant for a service and seeks
return of some of the payment. Id. at *6. The court
concluded that Plaintiffs were attempting to apply the law
“backwards, ” thus suggesting that, if anything
(e.g., if there were no express contract), it would be
LabCorp that may have an unjust enrichment remedy against a
patient who failed to pay for services rendered. Id.
Second, the court rejected Plaintiff's argument that the
rate LabCorp charges third-party payors “is as a matter
of law the only reasonable rate.” Id. at *7.
Plaintiffs' new declaratory judgment claim, however, is
not an attempt to use quasi-contract doctrine to recoup
overpayments. Instead, Plaintiffs request a declaration that
LabCorp's remedy against customers who have not paid its
list prices sounds in quasi-contract and is therefore limited
to recovery in quantum meruit. Moreover, Plaintiffs have
backed off of their original insistence that the rate LabCorp
charges third-party payors is necessarily the reasonable
value of its services in every case. See, e.g., (Doc. 42 at
110). While Plaintiffs certainly offer little insight into
how they will ultimately propose to calculate reasonable
value, see Id. at ¶ 110 (“Plaintiffs also
anticipate relying upon an expert to analyze the private
third-party payer and government payer data to develop a
formula to calculate the market rate for any given clinical
lab test.”), they have untethered themselves from their
original, fatally-constrained theory of reasonable
motion hearing, LabCorp expressed its view that the parties
have an implied-in-fact contract for LabCorp's list
price. However, LabCorp admits in briefing
that “the facts alleged allow for [the] possibilit[y] .
. . [that] no contract exists” between the parties.
(Doc. 46 at 12); see also Id. (“Plaintiffs
fail to plead the existence of an implied-in-fact
contract.”). Because the court takes Plaintiffs'
plausibly-pleaded factual allegations as true at this stage
and construes them in the light most favorable to Plaintiffs,
LabCorp's contention that an implied-in-fact contract
exists for its list price will depend on factual development.
cites several hospital rate cases for the proposition that it
has a contract with Plaintiffs for its list price, but all
are distinguishable from the facts alleged here. See
DiCarlo v. St. Mary Hosp., 530 F.3d 255 (3rd Cir. 2008);
Allen v. Clarian Health Partners, Inc., 980 N.E.2d
306 (Ind. 2012); Banner Health v. Med. Sav. Ins.
Co., 163 P.3d 1096 (Ariz. 2007). In each of these cases,
the patients signed an express agreement to pay the hospital,
and the court construed that written contract to reference
the hospital's list prices. See DiCarlo, 530 F.3d at 259,
264 (contract stated patients “guarantee[d] payment of
all charges and collection costs for services rendered”
and court found that “‘all charges'
unambiguously can only refer to [the hospital's] uniform
charges set forth in its Chargemaster”); Allen, 980
N.E.2d at 309, 311 (contract stated patients
“guarantee[d] payment of the account” and court
found that “Patients' agreement to pay ‘the
account' in the context of [the hospital's] contract
to provide medical services is not indefinite and refers to
[the hospital's] chargemaster); Banner Health, 163 P.3d
at 1098, 1100 (some contracts stated patients agreed to
“pay the hospital[']s usual and customary charges,
” while others stated patients agreed to “pay the
account” - court found the contract
“incorporated” Arizona's hospital price
regulation scheme and therefore referred to the prices set
via that scheme). No. written contract is alleged
here. Nor does LabCorp attempt to address the hospital rate
cases reaching the opposite result. See Doe v. HCA Health
Services of Tenn., Inc., 46 S.W.3d 191, 194, 197 (Tenn.
2001) (contract stated patients agreed to be
“financially responsible to the hospital for
charges” and court found the contract unenforceable
because “the price term . . . is indefinite”).
conclusion, nothing in the court's prior memorandum
opinion and order bars Plaintiffs' claim seeking a
declaratory judgment that LabCorp is limited to a
quasi-contract theory of recovery against Plaintiffs, and
LabCorp offers no other persuasive reason that the claim
should fail at this early stage. The motion to dismiss will
therefore be denied as to Count I.
Implied-Contract Recoupment Claim
Plaintiffs' declaratory judgment claim, Plaintiffs'
recoupment claim is substantively the same one the court
previously rejected. Plaintiffs once again assert a theory of
unjust enrichment never before recognized by a North
Carolina court: that - absent fraud or mistake of fact - a
person who has received services and has knowingly paid the
price demanded for those services can sue for unjust
enrichment to recoup whatever part of the price the defendant
could not have obtained if it had instead sued the plaintiff
for unjust enrichment. See Sanders v. Ragan, 90
S.E. 777, 778 ( N.C. 1916) (creating equitable exceptions to
the normal requirements of unjust enrichment claims where
payment was made “under a mistake of fact” or
“was induced . . . by the [defendant's]
court previously noted, North Carolina courts have generally
applied the doctrine of unjust enrichment to suits
“seek[ing] to return to the plaintiff the reasonable
value of the services and goods provided to the
defendant.” Sullivan, 2018 WL 1586471, at *7 (quoting
W.F. Magann Corp. v. Diamond Mfg. Co., 775 F.2d
1202, 1208 (4th Cir. 1985)). Here, LabCorp provided a service
to Plaintiffs, not the other way around. See Krebs v.
Charlotte Sch. of Law, LLC, No. 3:17-cv-00190-GCM, 2017
WL 3880667 (W.D. N.C. Sept. 5, 2017) (finding that a
“[p]ayment . . . cannot be unjust if the [plaintiffs]
received the benefit for which they paid” and rejecting
“[a]ny inquiry into the . . . value of the services
provided” once payment has been made). Thus, even if -
assuming that Plaintiffs succeed in showing that only a
quasi-contract exists between the parties - LabCorp's
remedy against those Plaintiffs who refuse to pay is limited
to quantum meruit, it does not follow that those Plaintiffs
who have paid the price LabCorp charged have a quantum meruit
remedy against LabCorp. “[U]njust enrichment [i]s an
appropriate remedy only in situations where the complaining
party . . . undertook an action with an expectation of
compensation or other benefit in return.” Butler v.
Butler, 768 S.E.2d 332, 339 ( N.C. Ct. App. 2015);
see also Stout v. Smith, 165 S.E.2d 789, 791 ( N.C.
Ct. App. 1969) (“A promise to pay for services is
implied when they are rendered and received in such
circumstances as authorize the party performing to entertain
a reasonable expectation of payment for them by the party
benefited.”). Plaintiffs cannot have reasonably
expected LabCorp to provide them with some additional benefit
in compensation for their payment of charges for services
LabCorp had already rendered.
do not attempt to address these issues. Rather, they cite two
cases in support of their one-sentence recoupment argument.
In Amwest Surety Insurance Co. v. Republic National
Bank,977 F.2d 122 (4th Cir. 1992), the Fourth Circuit
held that - under South Carolina law - a plaintiff could
recover funds a bank appropriated from the plaintiff and used
to pay down a third-party debt (all in breach of the
parties' line of credit and loan documentation) without
the plaintiff's consent. In Root v. Allstate
Insurance Co.,158 S.E.2d 829 ( N.C. 1968), the North
Carolina Supreme Court reversed the trial court's
dismissal of a claim that the defendant/lessee was unjustly
enriched by having used part of the ...