LaVallee v. Medcost Benefits Services

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

ASHEVILLE DIVISION

CIVIL CASE NO. 1:21-cv-00265-MR

L.L., individually and on behalf of )

E.R., a minor, )

)

Plaintiffs, )

)

vs. ) MEMORANDUM OF

) DECISION AND ORDER

)

MEDCOST BENEFIT SERVICES, )

MOUNTAIN AREA HEALTH )

EDUCATION CENTER MEDICAL )

AND DENTAL CARE PLAN, )

)

Defendants. )

________________________________ )

THIS MATTER is before the Court on the Defendant Medcost Benefit

Services’ Motion to Dismiss [Doc. 32].

I. PROCEDURAL HISTORY

The Plaintiffs, L.L., individually and on behalf of her minor child, E.R.,

(collectively, “Plaintiffs”) filed a Complaint on July 26, 2021, in the District of

Utah against Defendants Medcost Benefit Services (“Medcost”) and

Mountain Area Health Education Center (“MAHEC”) Medical and Dental

Care Plan (“the Plan”) (collectively, “Defendants”). [Doc. 2]. The Complaint

sets forth two causes of action pursuant to the Employee Retirement Income

Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001 et seq.: the first for

recovery of benefits pursuant to 29 U.S.C. § 1132(a)(1)(B) and the second

seeking equitable relief pursuant to 29 U.S.C. § 1132(a)(3) for a violation of

the Mental Health Parity and Addiction Equity Act (“MHPAEA”), 29 U.S.C. §

1185a. [Id. at ¶¶ 46-73].

On October 5, 2021, the parties stipulated to a change of venue to the

Western District of North Carolina [Doc. 10], and the case was transferred

on October 6, 2021 [Doc. 12]. On November 1, 2021, Medcost filed a Motion

to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.1

[Doc. 20]. On January 21, 2022, L.L. filed a motion for leave to file an

amended complaint [Doc. 26], and the Court granted that motion on January

25, 2022 [Doc. 27]. On February 8, 2022, L.L. filed an Amended Complaint,

asserting the same causes of action as the original Complaint. [Doc. 28]. On

March 1, 2022, Medcost filed a Motion to Dismiss the Amended Complaint

pursuant to Rule 12(b)(6). [Doc. 32]. L.L. filed a Response in Opposition to

Medcost’s Motion to Dismiss on March 22, 2022 [Doc. 35], and Medcost filed

a Reply to L.L.’s Response on April 5, 2022 [Doc. 36]. Thus, this matter has

been fully briefed and is now ripe for review.

1 The Plan did not join the Motion to Dismiss and has filed an Answer to the Amended

Complaint. [Doc. 29].

II. STANDARD OF REVIEW

The central issue for resolving a Rule 12(b)(6) motion is whether the

claims state a plausible claim for relief. See Francis v. Giacomelli, 588 F.3d

186, 189 (4th Cir. 2009). In considering the Defendant’s motion, the Court

accepts the allegations in the Complaint as true and construes them in the

light most favorable to the Plaintiff. Nemet Chevrolet, Ltd. v.

Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009); Giacomelli,

588 F.3d at 190-92. Although the Court accepts well-pled facts as true, it is

not required to accept “legal conclusions, elements of a cause of action, and

bare assertions devoid of further factual enhancement.”

Consumeraffairs.com, 591 F.3d at 255; see also Giacomelli, 588 F.3d at

189.

The claims need not contain “detailed factual allegations,” but must

contain sufficient factual allegations to suggest the required elements of a

cause of action. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

(2007); see also Consumeraffairs.com, 591 F.3d at 256. “[A] formulaic

recitation of the elements of a cause of action will not do.” Twombly, 550 U.S.

at 555. Nor will mere labels and legal conclusions suffice. Id. Rule 8 of the

Federal Rules of Civil Procedure “demands more than an unadorned, the

defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009).

The Complaint is required to contain “enough facts to state a claim to

relief that is plausible on its face.” Twombly, 550 U.S. at

570; see also Consumeraffairs.com, 591 F.3d at 255. “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 for the misconduct

alleged.” Iqbal, 556 U.S. at 678; see also Consumeraffairs.com, 591 F.3d at

255. The mere possibility that a defendant acted unlawfully is not sufficient

for a claim to survive a motion to dismiss. Consumeraffairs.com, 591 F.3d at

256; Giacomelli, 588 F.3d at 193. Ultimately, the well-pled factual allegations

must move a plaintiff’s claim from possible to plausible. Twombly, 550 U.S.

at 570; Consumeraffairs.com, 591 F.3d at 256.

III. FACTUAL BACKGROUND

Construing the well-pled factual allegations of the Amended Complaint

as true and drawing all reasonable inferences in the Plaintiff’s favor, the

following is a summary of the relevant facts.

The MAHEC Plan is a self-funded employee welfare benefits plan

under ERISA. [Doc 28 at ¶ 7]. Medcost is an insurance company that serves

as the third-party claims administrator for the MAHEC Plan. [Id. at ¶¶ 2-3].

As third-party claims administrator, Medcost has discretionary authority and

responsibility to administer claims and to interpret eligibility for benefits. [Id.

at ¶¶ 3-4]. L.L. and her daughter, E.R.,2 are covered by the Plan. [Id. at ¶ 7].

At all times relevant to the present case, L.L. was a participant in the Plan

and E.R. was a beneficiary of the Plan. [Id.]. The two continue to be a

participant and beneficiary of the Plan, respectively. [Id.].

E.R. has significant behavioral problems and suffers from an

attachment disorder. [Id. at ¶ 14]. She has engaged in a course of self-harm

and has threatened suicide. [Id.]. As she has grown older, her behavioral

problems have worsened and she has experienced continually intensifying

fits of rage and has behaved violently toward her parents, including

threatening them with knives. [Id. at ¶¶ 15-16]. L.L. has sought therapy and

intervention for E.R., including taking her to psychiatrists who prescribed

psychiatric medication. [Id. at ¶ 15]. However, these interventions proved

ineffective. [Id. at ¶ 17]. After medication and outpatient therapy proved

ineffective, E.R. was admitted to an inpatient wilderness program, Trails

Carolina, where her behavior improved somewhat. [Id.]. After E.R.’s

discharge from Trails Carolina, her primary therapist recommended

2 Although E.R. was a minor at the time the action was filed, she has since reached the

age of majority.

additional treatment, and she was admitted to Lakehouse Academy for Girls.

[Id. at ¶ 18]. After her discharge from Lakehouse Academy for Girls, E.R.

saw a therapist and psychiatrist but refused to participate in treatment,

resulting in her therapy team stating they could no longer treat her. [Id. at ¶

18]. E.R. continued to threaten suicide and committed self-harm by carving

messages into her skin. [Id. at ¶ 19]. E.R. met with a crisis management team

on multiple occasions to assess her need for hospitalization, and her

treatment team ultimately recommended that she be admitted to Change

Academy Lake of the Ozarks (“CALO”), a residential treatment facility that

specializes in the treatment of individuals suffering from attachment

disorders. [Id. at ¶¶ 8, 19]. E.R. was admitted to CALO on August 3, 2018.

[Id. at ¶ 20].

L.L. sought to have the costs of E.R.’s treatment at CALO covered by

the Plan, arguing that the terms of the Plan provide that “the Plan covers

medically necessary mental health and/or substance abuse disorder

treatment,” including such treatment received at residential treatment

facilities. [Id. at ¶¶ 21-22]. However, in a letter to CALO dated July 25, 2019,

Medcost denied payment for E.R.’s treatment, citing an exclusion for

residential treatment. [Id. at ¶ 23]. Specifically, Medcost’s letter noted that

the Plan does not cover residential treatment for mental health and

substance disorders for: foster homes or halfway houses; wilderness center

training; therapeutic boarding schools; and custodial care, situation, or

environmental change. [Id.]. Medcost did not send that letter to L.L.;

however, L.L. was able to obtain a copy of the letter from CALO. [Id. at ¶ 25].

L.L. appealed the denial of benefits on January 9, 2020. [Id. at ¶ 24].

In her appeal, L.L. argued that she was entitled to certain review procedures

pursuant to ERISA and called Medcost’s attention to its failure to provide her

with a copy of the denial letter. [Id. at ¶¶ 24-25]. L.L also engaged in email

correspondence with Medcost about the denial. [See id. at ¶ 26]. In that

correspondence, Medcost clarified that it had classified CALO as a

“therapeutic boarding school” and noted that it was not its policy to draft a

denial letter when the denial was based on a “facility type exclusion.” [Id.].

The email correspondence revealed that CALO had disputed that

classification and included documentation showing its status as a licensed

residential treatment facility. [Id. at ¶ 27]. In her appeal, L.L. also referenced

CALO’s status as a licensed residential treatment facility and noted that this

licensed status qualified it as a covered residential treatment facility under

the terms of the Plan. [Id. at ¶¶ 29-30].

In a letter dated April 20, 2020, Medcost conceded that CALO met the

criteria for a residential treatment center and “provides all of the care

expected of a residential facility.” [Id. at ¶ 34]. Nevertheless, Medcost upheld

the denial of benefits, stating in relevant part, as follows:

Services were denied based on the exclusion in

[Summary Plan Document]; under Residential

Treatment for therapeutic boarding schools. No. It is

not medically necessary for this member to be

inpatient for this amount of time in a residential

treatment facility. The available information does not

support the medical necessity for the use of the RTC

level of care. This is due to a lack of documentation

of specific symptom severity that would require the

use of 24 hour a day monitoring, observation and

treatment. The patient has a chronic history of

behavioral difficulties, mood dysregulation, and

temper outbursts, but at the time of admission there

was no evidence of severity related to thoughts or

behaviors related self-harm, [sic] no severe

aggression, and no severity of mood requiring 24

hour a day care. In addition, there is no evidence of

acute deterioration of functioning that would require

the intensive use of 24 hour a day resources for

chronic management and care. Therefore, the use of

the RTC level of care was excessive for the patient’s

documented presentation and was outside the

standard of care.

[Id. at ¶ 33]. The letter also stated that L.L. had the right to appeal the denial

and could request reasonable access to documents, records, and other

information relevant to the appeal. [Id. at ¶ 35].

L.L. submitted her appeal on October 9, 2020. [Id. at ¶ 36]. In this

appeal, L.L. argued that the CALO stay was medically necessary and

included several letters from members of E.R.’s treatment team to support

this argument. [Id. at ¶¶ 38-39]. L.L. also expressed concern that Medcost

was applying overly restrictive criteria to evaluate whether mental health

treatment was medically necessary and that it would not apply such criteria

to other types of medical treatment. [Id. at ¶¶ 41-46].

Medcost upheld the denial of benefits in a letter dated December 18,

2020. [Id. at 48]. This letter stated that L.L’s appeal “was reviewed out of

courtesy, but it did not meet the definition of an appeal.” [Id.]. The only

justification for denial included in this letter was that “appeals needed to be

directed to the Plan or Claims administrator and needed to be sent within

180 days of the adverse benefit determination.” [Id.]. At this point, having

exhausted her appeals process with Medcost, L.L. filed this action for

recovery of benefits and equitable relief pursuant to ERISA. [Id. at ¶ 49].

IV. DISCUSSION

L.L.’s Amended Complaint asserts two causes of action pursuant to

ERISA. [Doc. 28]. The first is for recovery of benefits pursuant to 29 U.S.C.

§ 1132(a)(1)(B), and the second is for equitable relief pursuant to 29 U.S.C.

§ 1132(a)(3) for equitable relief for a violation of the MHPAEA. [Id.].

A. Recovery of Benefits

Title 29 of the United States Code, Section 1132(a)(1)(B) provides that

a participant or beneficiary of an ERISA-governed plan may bring a civil

action “to recover benefits due to [her] under the terms of [her] plan, to

enforce [her] rights under the terms of the plan, or to clarify [her] rights to

future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).

The Fourth Circuit3 has not addressed what a plaintiff must allege to

sufficiently state a claim for recovery of benefits. Medcost, citing several out-

of-circuit district courts, argues that, to state a plausible claim for relief, a

plaintiff must identify in her complaint a specific Plan provision that provides

coverage. [Doc. 23 at 9]. At least one circuit court has held similarly, stating

that “[t]o plead a violation of [§ 1132(a)(1)(B)], a plaintiff must allege ‘the

existence of an ERISA plan,’ and identify ‘the provisions of the plan that

entitle [them] to benefits.’” Doe v. CVS Pharmacy, Inc., 982 F.3d 1204, 1213

(9th Cir. 2020) (third alteration in original) (quoting Almont Ambulatory

Surgery Ctr., LLC v. UnitedHealth Grp., Inc., 99 F. Supp. 3d 1110, 1155 (C.D.

Cal. 2015)). L.L., on the other hand, argues that at the motion-to-dismiss

stage all that is required is that she state enough facts to plausibly allege that

the denied benefit was covered under an ERISA-governed plan. [Doc. 35 at

5].

3 This case was originally filed in the District of Utah and was transferred here by the

stipulation of the parties. The parties do not address whether the law of the original forum

is applicable, but the Court’s review of Fourth and Tenth Circuit precedent has not

revealed any relevant distinctions.

The Court need not determine which legal standard applies here,

because even applying Medcost’s arguably higher standard, the Court

concludes that L.L. has sufficiently stated a claim. L.L. alleges the existence

of an ERISA-governed plan, [Doc. 28 at ¶ 7], and alleges that E.R. was a

beneficiary of the plan, [id.]. She goes on to identify the provision of the Plan

that she contends entitles E.R. to coverage: she specifically alleges that the

Plan covers medically necessary treatment at residential facilities, other than

the facilities that are explicitly excluded. [Id. at ¶¶ 23, 53]. L.L. alleged that

the treatment at CALO was medically necessary, [id. at ¶ 38-39], and that

CALO was not an excluded facility, [id. at ¶ 29]. Construing these well-

pleaded allegations as true, L.L. has sufficiently stated a claim for recovery

of benefits. Accordingly, the Court will deny Medcost’s motion to dismiss as

to this cause of action.

B. Equitable Relief for Violation of MHPAEA

In addition to seeking benefits in accord with the terms of the Plan, L.L.

seeks a variety of equitable remedies pursuant to 29 U.S.C. § 1132(a)(3).

[Id. at ¶ 87]. Section 1332(a)(3) provides that a participant, beneficiary, or

fiduciary can bring a civil action to obtain appropriate equitable relief to

redress a violation of ERISA or to enforce a provision of ERISA or the terms

of the ERISA-governed plan. 29 U.S.C. § 1332(a)(3). Here, L.L. alleges that

Medcost violated the MHPAEA, 29 U.S.C. § 1185a, which states that an

ERISA-governed plan that provides both medical and surgical benefits and

mental health or substance use disorder benefits cannot apply more

restrictive treatment limitations to mental health or substance use disorder

benefits than the “predominant treatment limitations applied to substantially

all medical and surgical benefits covered by the plan” and provides that a

plan cannot apply “separate treatment limitations that are applicable only

with respect to mental health or substance use disorder benefits.” 29 U.S.C.

§ 1185a(a)(3)(A)(ii). Treatment limitations can be quantitative—for example,

capping the number of provider visits per year—or nonquantitative—for

example, approving only such treatments that are medically necessary. See

Alan R. v. Bank of Am. Grp. Benefits Program, No. 3:20-cv-00441-RJC-DSC,

2022 WL 413935, at *10 (W.D.N.C. Feb. 9, 2022).

Plaintiffs alleging violations of the MHPAEA can bring a facial

challenge—alleging that the express terms of the ERISA-governed plan

discriminate against mental health or substance use disorder benefits—or

an as-applied challenge—alleging that while the plan terms are neutral on

their face, “the same nonquantitative treatment limitations are applied more

stringently to mental health and substance use disorder benefits.” See Alan

R., 2022 WL 413935, at *11. Here, L.L. brings an as-applied challenge as

she alleges that Medcost’s application of its nonquantitative treatment

limitations was more stringent because E.R.’s claim was for mental health

treatment.4

The Supreme Court has clarified that § 1132(a)(3) is a “safety net”

provision. Varity Corp. v. Howe, 516 U.S. 489, 512 (1996). Accordingly,

equitable relief pursuant to § 1132(a)(3) is “normally appropriate only for

injuries that do not find adequate redress in ERISA’s other provisions.”

Korotynska v. Metro. Life Ins. Co., 474 F.3d 101, 102 (4th Cir. 2006). In

Korotynska, the Fourth Circuit held that when § 1132(a)(1)(B) affords a

plaintiff adequate relief for her benefits claim a cause of action under §

1132(a)(3) is not appropriate. Id. at 107.

Medcost argues that L.L., like the plaintiff in Korotynska, seeks

equitable relief for an injury that could be adequately redressed by her §

1132(a)(1)(B) recovery of benefits claim. [Doc. 33 at 22-23]. In response,

L.L. argues that she seeks equitable relief “to ensure that E.R. receives the

benefits she is entitled to in the future,” which she argues is distinct from an

attempt to recover benefits owed. [Doc. 35 at 22-23]. L.L. also argues that

4 While the Amended Complaint does not specify whether L.L. is bringing a facial or as-

applied challenge, her Response to Medcost’s Motion to Dismiss clarifies that her

challenge is as-applied. [Doc. 35 at 13]. Further, she does not allege in her Amended

Complaint that specific Plan language is discriminatory but rather that Medcost’s internal

review policies ensured that nonquantitative treatment limitations were applied more

stringently to mental health treatment. [See Doc. 28 at ¶¶ 65-66].

she seeks relief for a different injury under each ERISA provision—for an

unlawful denial of benefits under § 1132(a)(1)(B) and for a breach of fiduciary

duty under § 1132(a)(3). [Id. at 23].

Neither of these arguments demonstrates that § 1132(a)(1)(B) would

not afford adequate relief. As to L.L.’s first argument, § 1132(a)(1)(B)

expressly provides that plaintiffs may bring a civil action “to clarify [her] rights

to future benefits under the terms of the plan.” 29 U.S.C. § 1132(a)(1)(B).

Accordingly, to the extent L.L. seeks both a recovery of past-owed benefits

and a clarification of future coverage, both remedies are available under §

1132(a)(1)(B). Similarly, L.L.’s argument that Medcost’s alleged breach of

fiduciary duty is a distinct injury fails. The harm that flowed from this alleged

breach was the denial of benefits. Accordingly, the injury of breach of

fiduciary duty is not distinct from the injury of a wrongful denial of benefits

and can be adequately redressed through a recovery of benefits action.

Because L.L.’s alleged injury can be adequately redressed through other

ERISA provisions, the Court concludes that equitable relief pursuant to §

1132(a)(3) is not appropriate.

L.L. also argues that, even if her § 1132(a)(3) claim is duplicative

because § 1132(a)(1)(B) adequately affords her relief, both claims should be

allowed to go forward at the motion-to-dismiss stage. [Doc. 35 at 24]. L.L.

cites two out-of-circuit district court cases to support this proposition. [Id.].

However, courts in this circuit regularly dismiss duplicative § 1132(a)(3)

claims at this stage of litigation. See, e.g., Koman v. Reliance Standard Life

Ins. Co., 1:22-cv-595, 2022 WL 17607056 (M.D.N.C. December 13, 2022);

Greenwell v, Grp. Health Plan for Emps. of Sensus USA, Inc., 505 F. Supp.

3d 594 (E.D.N.C. 2020); see also Savani v. Wash. Safety Mgmt. Sols., LLC,

474 F. App’x 310, 313 n.2 (4th Cir. 2012) (“The district court also properly

dismissed count two on the grounds that a party may not request

simultaneous relief under both ERISA, § 502(a)(1)(B) and § 502(a)(3).”).

Accordingly, the Court will dismiss L.L.’s § 1132(a)(3) claim against Medcost.

C. Proceeding Anonymously

Both L.L. and E.R. are identified only by pseudonym in the Complaint

and the Amended Complaint. Rule 10 of the Federal Rules of Civil Procedure

provides that complaints must include the names of all parties to an action.

Fed. R. Civ. P. 10(a). However, “in exceptional circumstances, compelling

concerns relating to personal privacy or confidentiality may warrant some

degree of anonymity in judicial proceedings.” Doe v. Public Citizen, 749 F.3d

246, 273 (4th Cir. 2014). Accordingly, the Plaintiffs are ordered to show

cause as to why they should be allowed to proceed under pseudonyms.

D. Substitution of Parties

This action was filed by L.L. individually and on behalf of her minor

child, E.R. According to Medcost, E.R. has now reached the age of majority.

[Doc. 36 at 2 n.1]. Accordingly, as E.R. can now presumably prosecute this

action herself, the Plaintiffs are ordered to substitute E.R. as a party to this

action or, alternatively, to show cause as to why E.R. cannot prosecute this

action herself despite having reached the age of majority.

IT IS, THEREFORE, ORDERED that Medcost’s Motion to Dismiss

[Doc. 32] is GRANTED IN PART AND DENIED IN PART. The Motion is

GRANTED as to the Plaintiff’s second cause of action for equitable relief

pursuant to 29 U.S.C. § 1132(a)(3) and DENIED as to the Plaintiff’s first

cause of action for recovery of benefits pursuant to 29 U.S.C. §

1132(a)(1)(B).

IT IS FURTHER ORDERED that, within fourteen days of the entry of

this Order, the Plaintiffs shall show cause as to why they should be allowed

to proceed anonymously.

IT IS FURTHER ORDERED that, within fourteen days of the entry of

this Order, the Plaintiff shall file an appropriate motion to substitute E.R. as

a party to this action or, alternatively, to show cause as to why E.R. cannot

prosecute this action herself.

IT IS SO ORDERED.

Signed: January 20, 2023

Martifi Reidinger Ly,

Chief United States District Judge WG

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