Dedicato Treatment Center, Inc. v. IEC Group, Inc.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘O’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

Present: The Honorable CHRISTINA A. SNYDER

Catherine Jeang Laura Elias N/A

Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

David Shaneyfelt Colin Proksel

Proceedings: ZOOM HEARING RE: DEFENDANT’S MOTION TO DISMISS

THE FIRST AMENDED COMPLAINT (Dkt. 36, filed on August 1,

2023)

DEFENDANT’S MOTION FOR SANCTIONS (Dkt. 40, filed on

September 13, 2023)

I. INTRODUCTION

Salt River Pima-Maricopa Indian Community (the “Community’”) is a sovereign

nation under United States law. See dkt. 24 (“FAC”) 9] 4-5. It maintains a self-funded

health insurance plan, the Salt Pima-Maricopa Indian Community Self-Funded Health

Plan (the “Plan’’), for the benefit of its members and employees. Id. 6. IEC Group,

Inc., dba AmeriBen (“AmeriBen’) is the Plan’s third-party administrator (TPA). Id. 4 7.

On June 13, 2022, plaintiff Dedicato Treatment Center, Inc. (“Dedicato”) filed suit

against AmeriBen, alleging that AmeriBen failed to pay for services that Dedicato had

provided to a member of the Plan. Dkt. 1. On October 11, 2022, AmeriBen filed a

motion to dismiss the complaint. Dkt. 17.

On November 22, 2022, the Court granted AmeriBen’s motion to dismiss pursuant

to Rule 12(b)(7) because the Community was an indispensable party that could not be

joined. Dkt. 22.

On December 13, 2022, Dedicato filed a first amended complaint naming the

Community as the sole defendant. Dkt. 24. Based largely on the same facts as the

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

original complaint, Dedicato has brought the following state law claims against the

Community: (1) breach of contract; (2) breach of implied contract; (3) breach of covenant

of good faith and fair dealing; (4) promissory estoppel; (5) quantum meruit; (6) violations

of California Business and Professions Code Section 17200, et seg. (“Unfair Competition

Law” or “UCL”). Id. {J 10-15.

On August 1, 2023, defendant filed the instant motion to dismiss the first amended

complaint. Dkt. 36 (“MTD”). On September 1, 2023, plaintiff filed its opposition. Dkt.

38 (“Opp.”). On September 11, 2023, defendant filed a reply. Dkt. 39 (“Reply”).

On September 13, 2023, defendant filed a motion for sanctions pursuant to Rule 11

arguing that the Court should impose sanctions against plaintiff for “fil[ing] frivolous

claims against the Community.” Dkt. 40 (“MFS”) at 6.

On October 2, 2023, the Court held a hearing. Having carefully considered the

parties’ arguments and submissions, the Court finds and concludes as follows.

Il. BACKGROUND

Plaintiff Dedicato is a treatment center based in Sierra Madre, California, that

provides substance abuse treatment services to patients. FAC 4 1-3. The Community is

a federally recognized tribe that was established by Executive Order on June 14, 1879, by

President Rutherford B. Hayes. Id. { 4. The Community maintains a self-funded

healthcare plan and contracts AmeriBen, an Idaho corporation, to serve as the third-party

administrator (“TPA”) for the Plan. Id. 6-7.

Plaintiff acknowledges that the Community ordinarily enjoys tribal sovereign

immunity from lawsuit but argues that the Community waived immunity by establishing

the Plan and agreeing to certain terms in its contract with AmeriBen. Id. 9-20.

On September 25, 2019, a patient (sometimes referred to as “A.N.” in the

complaint) sought treatment from plaintiff for substance abuse.! Id. § 26. Plaintiff asked

whether A.N. was covered under any health insurance policy that would cover substance

abuse treatment. Id. 27. A.N. presented a medical ID card showing A.N. was enrolled

! The patient is inconsistently referred to as either D.N. or A.N. in the FAC. See FAC 9§

25-26.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘oO’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

in the Plan. Id. After reviewing the information contained on the patient’s medical ID

card, Dedicato provided a copy of the information to its billing agent, Vertex Healthcare

Services, Inc. (“Vertex”) to confirm the patient’s eligibility for treatment under the Plan

and to obtain certification for treatment. Id. § 28.

Plaintiff alleges that on or about September 25, 2019, a Vertex representative

spoke with an AmeriBen representative to confirm that the patient met all requirements

for coverage. Id. 429. Plaintiff specifically alleges that, although AmeriBen had advised

that no additional pre-certification would be necessary, “in an abundance of caution,

Dedicato sought, and obtained, AmeriBen’s authorization before proceeding with further

treatment. Dedicato wanted to specifically ensure that AmeriBen agreed with the

treatment recommended for the Patient and that AmeriBen would agree to pay for that

treatment after Dedicato provided it.” Id. 4 31.

Plaintiff alleges that from September to November 2019, Vertex requested on

behalf of plaintiff, and AmeriBen approved, five series of ten-day hospitalization periods

for the patient’s treatment. Id. {] 32-36. Plaintiff sent AmeriBen two invoices for

services rendered, and on or about November 1, 2019, and January 3, 2020, AmeriBen

partially paid each respective invoice. Id. 4] 38-40.

Plaintiff subsequently alleges that from September to December 2020, Vertex

requested on behalf of plaintiff, and AmeriBen approved, ten further periods of treatment

for the patient. Id. §] 41-44. Plaintiff sent AmeriBen seven invoices in connection with

these services, and AmeriBen continued to make only partial payments. Id. □□ 45-46.

Plaintiff alleges that from January to February 2021, Vertex requested on behalf of

plaintiff, and AmeriBen approved, a final series of treatment periods for the patient. Id.

| 47-49. According to plaintiff, it sent another six invoices for services rendered during

that period, and AmeriBen again only partially paid the fees. Id. §§] 50-52.

According to plaintiff, throughout this period, “Vertex representatives spoke with

AmeriBen representatives who indicated that more payments would be coming.” Id.

Plaintiff maintains that “AmeriBen, in fact, sent more payments, but for only a

fraction of the amounts billed.” Id.

In sum, plaintiff alleges that AmeriBen has only paid $72,264.88 out of $508,000.

Id. § 56. Based on these alleged facts, plaintiff filed suit solely against the Community.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘O’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

Il. LEGAL STANDARD

A. Dismissal for Lack of Subject Matter Jurisdiction (Rule 12(b)(1))

A motion to dismiss an action pursuant to Fed. R. Civ. P. 12(b)(1) raises the

objection that the federal court has no subject matter jurisdiction over the action. This

defect may exist despite the formal sufficiency of the allegations in the complaint. T.B.

Harms Co. v. Eliscu, 226 F. Supp. 337, 338 (S.D.N.Y. 1964), aff'd 339 F.2d 823 (2d Cir.

1964). When considering a Rule 12(b)(1) motion challenging the substance of

jurisdictional allegations, the Court 1s not restricted to the face of the pleadings, but may

review any evidence, such as declarations and testimony, to resolve any factual disputes

concerning the existence of jurisdiction. See McCarthy v. United States, 850 F.2d 558,

560 (9th Cir. 1988).

Once a Rule 12(b)(1) motion has been raised, the burden is on the party asserting

jurisdiction. Sopcak v. N. Mountain Helicopter Serv., 52 F.3d 817, 818 (9th Cir. 1995):

Ass’n of Am. Med. Coll. v. United States, 217 F.3d 770, 778-79 (9th Cir. 2000). If

jurisdiction is based on a federal question, the pleader must show that he has alleged a

claim under federal law and that the claim is not frivolous. See 5B Charles A. Wright &

Arthur R. Miller, Federal Practice and Procedure, § 1350, pp. 211, 231 (3d ed. 2004). If

jurisdiction is based on diversity of citizenship, the pleader must show real and complete

diversity, and also that his asserted claim exceeds the requisite jurisdictional amount of

$75,000. See id.

B. Rule 11 Sanctions

Under Federal Rule of Civil Procedure 11, a court may impose sanctions upon

attorneys or unrepresented parties for submitting papers to a court that are frivolous,

legally unreasonable, baseless, or filed for an improper purpose, such as harassment.

Simpson v. Lear Astronics Corp., 77 F.3d 1170, 1177 (9th Cir.1996). All pleadings and

other motions filed with a court must be signed by an attorney or the unrepresented party,

certifying that “to the best of the person's knowledge, information, and belief, formed

after an inquiry reasonable under the circumstances”: (1) the paper is not presented for an

improper purpose; (2) the claims have a valid legal basis; and (3) there is factual support

for the allegations. Fed. R. Civ. P. 11(b). Rule 11 imposes on attorneys an “objective

standard of reasonableness under the circumstances.” Golden Eagle Dist. Corp. v.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘O’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

Burroughs Corp., 801 F.2d 1531, 1537 (9th Cir. 1986) (internal quotation marks omitted).

However, Rule 11 “is not intended to chill an attorney’s enthusiasm or creativity in

pursuing factual or legal theories.” Greenberg v. Sala, 822 F.2d 882, 887 (9th Cir. 1987)

(quoting Fed. R. Civ. P. 11 advisory committee’s note).

The imposition of Rule 11 sanctions is a matter within the discretion of the trial

court. Fed. R. Civ. P. 11(c); see id. advisory committee’s notes (1993 amendments)

(“The court has significant discretion in determining what sanctions, if any, should be

imposed for a violation.”). Any Rule 11 sanctions “must be limited to what suffices to

deter repetition of the conduct or comparable conduct by others similarly situated.” Fed.

R. Civ. P. 11.

IV. DISCUSSION

A. Lack of Subject Matter Jurisdiction

Plaintiff does not specify grounds for subject matter jurisdiction in its first

amended complaint. See FAC. In turn, defendant argues for dismissal based on lack of

subject matter jurisdiction. It alleges there is no diversity jurisdiction because “Indian

tribes and their entities are not state citizens” that may be sued in diversity. MTD at 3.

Additionally, defendant argues there is “no federal question presented in the FAC”

because plaintiff only brings “common law or state law claims.” Id. In opposition,

plaintiff argues that “Congress expressly authorized ERISA-related actions against Indian

Tribes that establish ERISA Plans.” Opp. at 3. It cites Lumber Industry Pension Fund v.

Warm Springs Forest Products Industries, where the Ninth Circuit held that “ERISA is a

statute of general applicability” that provides a basis for suing native tribes. 939 F.2d

683, 685 (9th Cir. 1991). However, elsewhere in their brief, plaintiff expressly states that

“Dedicato does not allege any claims under ERISA [and instead] alleges contract-related

claims here.” Opp. at 21-22. Separately, plaintiff argues that “subject matter jurisdiction

exists[] because the Community waived sovereign immunity through its [contractual

agreement with AmeriBen].”? Opp. at 9, 13-17.

? The parties also dispute whether the Plan has sovereign immunity as an “arm of the

tribe,” but this issue is irrelevant given that both parties agree the Plan is not a party to

this suit. See Opp. at 2; Reply at 2-3.

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘O’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

In reply, defendant argues that ERISA “d[oes] not confer federal question or

diversity jurisdiction over” suits against tribes, even if such suits are “authorize[d].”

Opp. at 3. Rather, “Dedicato must provide an independent basis for jurisdiction” because

“Ta| party’s ability to sue is not the same as a court’s ability to hear and rule on the suit.”

Id. Defendant also disputes that it waived sovereign immunity and additionally argues

that, even if it did waive immunity, that does not separately create subject matter

jurisdiction. Id. at 4.

The Court finds that this case should be dismissed for lack of subject matter

jurisdiction. There is no diversity jurisdiction because “an unincorporated Indian

tribe . . . is not a ‘citizen’ of a state within the meaning of the federal diversity statute, 28

U.S.C. § 1332(a)(1), and thus cannot[] be sued in diversity.”> Am. Vantage Companies,

Inc. v. Table Mountain Rancheria, 292 F.3d 1091, 1093 (9th Cir. 2002).

Nor is federal question jurisdiction appropriate. Regardless of whether or not

Congress has authorized ERISA suits against tribes, plaintiff has made it clear that its

“claims are contract claims, not ERISA claims.” Opp. at 21 (capitalization omitted).

State law claims do not provide a basis for federal question jurisdiction.

Finally, regardless of whether defendant waived sovereign immunity or not, waiver

in-and-of-itself does not create subject matter jurisdiction. See Am. Vantage Companies,

Inc., 292 F.3d at 1099 (“We therefore reject the contention that a tribe’s waiver of

sovereign immunity creates state citizenship for diversity jurisdiction purposes.’’).

Thus, the Court finds that defendant’s motion to dismiss for lack of subject matter

jurisdiction should be granted.

B. Other Grounds for Dismissal

Because the Court has dismissed this case for lack of subject matter jurisdiction, it

does not address defendant’s arguments regarding personal jurisdiction and sovereign

immunity.

3 Neither party has alleged that the Community is an incorporated tribe, which would

change the analysis. See Am. Vantage Companies, Inc., 292 F.3d at 1095 n.1 (“An

incorporated tribe[]| is . . . ordinarily a citizen of the state in which it resides.”’).

UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

CIVIL MINUTES — GENERAL ‘O’ JS-6

Case No. 2:22-cv-04045-CAS-Ex Date October 2, 2023

Title DEDICATO TREATMENT CENTER, INC. v. SALT RIVER PIMA-

MARICOPA INDIAN COMMUNITY

C. Defendant’s Motion for Sanctions

Defendant argues that plaintiff “has violated Rule 11(b)(2) because its claims and

other legal contentions are not warranted by existing law or by a nonfrivolous argument

for extending or modifying existing law or for establishing new law, and any competent

inquiry would have concluded that the claims are frivolous.” MEFS at 4 (emphasis in

original). Defendant contends that, during a July 20, 2023, conferral, it provided

plaintiff's counsel with a letter “set|ting| forth each argument creating a basis for

dismissal and for Rule 11 sanctions.” Id. at 5-6. Plaintiff's counsel allegedly did not

pushback on the letter but “[i]nstead[] noted that it wanted its day in court.” Id. at 3.

Defendant alleges that, “had [plaintiff's] counsel conducted a competent inquiry, he

would have readily discovered that . . . well-established principles provide myriad bases

for dismissal.” Id. at 6.

The Court may impose Rule 11 sanctions even after it determines it lacks subject

matter jurisdiction. Orange Prod. Credit Ass’n v. Frontline Ventures Ltd., 792 F.2d 797,

801 (9th Cir. 1986) (holding that “[t]he fact[] the district court lacked [subject matter]

jurisdiction to consider the merits of the case did not preclude it from imposing

sanctions”).

Here, the Court has considered defendant’s arguments regarding sanctions. The

Court is not convinced that the filing of this suit was so clearly improper or unreasonable

as to justify an award of sanctions.

V. CONCLUSION

In accordance with the foregoing, the Court GRANTS defendant’s motion to

dismiss plaintiff's complaint without prejudice. The Court DENIES defendant’s motion

for sanctions and vacates the October 23, 2023, hearing on the matter of sanctions.

IT IS SO ORDERED.

00 : 02

Initials of Preparer OM