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Anderson v. Laboratory Corporation of America Holdings

United States District Court, M.D. North Carolina

August 16, 2019

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,
v.
LABORATORY CORPORATION OF AMERICA HOLDINGS, Defendant.

          MEMORANDUM OPINION AND ORDER

          THOMAS D. SCHROEDER, CHIEF DISTRICT JUDGE

         This 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.

         I. BACKGROUND

         The allegations of the 555-paragraph amended complaint, viewed in the light most favorable to Plaintiffs as the non-moving parties, show the following:

         LabCorp 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.)

         LabCorp 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”[1]); 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.)

         There 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.[2] (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.[3] (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.

         The 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.

         LabCorp 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 for decision.

         II. ANALYSIS

         A. Motion to Dismiss

         In 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 unlawfully.” Id.

         1. Implied-Contract Declaratory Judgment Claim

         In the amended complaint, Plaintiffs “seek a declaratory judgment [4] 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.”[5] (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.”[6] (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.[7] 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).[8] 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.)

         The 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 . . . .”).

         Because 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.[9] 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.

         The 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 value.[10]

         At the motion hearing, LabCorp expressed its view that the parties have an implied-in-fact contract for LabCorp's list price.[11] 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.

         LabCorp 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).[12] 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”).

         In 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.

         2. Implied-Contract Recoupment Claim

         Unlike 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[13] 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.[14] 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] fraud”).

         As the 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.

         Plaintiffs 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 ...


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