Opinion
No. X01-CV04-4000582S
January 26, 2005
MEMORANDUM OF DECISION RE MOTION TO STRIKE (#105)
The plaintiff doctor ("Ravski") is a member of the defendant medical society, a corporation operating as an IPA (Independent Practice Association) through which HealthNet, Inc. and/or its predecessors in interest, a health insurer operating in Connecticut, contracts or has contracted with him and other Connecticut physicians under a Participating Provider Agreement with the defendant. It is alleged that, pursuant to that Agreement, member physicians provided medical services (and/or products) to patients insured by HealthNet and were paid according to a fee schedule to which the defendant and HealthNet agreed. Multiple causes of action are asserted, all of which essentially allege the defendant's violation of the Agreement. Specifically, it is alleged the defendant wrongfully withheld monies owed plaintiff members, failed to provide class members utilization standards by which utilization could be measured and/or applied standards in an arbitrary and capricious manner, prevented the named plaintiff and/or his representative from reviewing defendant's financial documents relevant to an accurate determination of monies owed, and failed also to provide physician members information regarding levels of utilization, established targets regarding such utilization, whether those targets were met or exceeded, and what changes in members' conduct of their practices were necessary for return to them of the funds withheld. As the defendant states in footnote #1 of its supporting memorandum of law, it "does not admit the truth of any allegation in plaintiff's Revised Complaint" except for purposes of this motion — as it is bound to do under this state's decisional law.
Ravski is the only named plaintiff of the class at this time. The class includes "all physicians who have, at any time from December 1, 1997, onward, been parties to an agreement with defendant for the provision of medical services to individuals insured by HealthNet which included a Withhold Clause" (sic); exempted from the class are "officers, directors or employees of the defendant or of HealthNet." Complaint, Paragraph 27.
The defendant has moved to strike four of the five counts of the complaint — specifically, the Second, Third, Fourth and Fifth Counts — to which the plaintiff has objected. The parties have filed memoranda with supporting documentation and the requisite Request for Adjudication. They have waived oral argument.
Applicable Law
A motion to strike tests the legal sufficiency of the allegations of a complaint to state a claim upon which relief can be granted. Vacco v. Microsoft Corp., 260 Conn. 59, 65 (2002); Practice Book § 10-39. The trial court's role is to examine the complaint, construed in favor of the pleader, to determine whether a legally sufficient cause of action has been pled. Suffield Development Associates Ltd. Partnership v. National Loan Investors, L.P., 260 Conn. 766, 772 (2002). Specifically, the court must "assume the truth of both the specific factual allegations and any facts fairly provable thereunder" and "read the allegations broadly, rather than narrowly." Craig v. Driscoll, 262 Conn. 312, 321 (2003). The requirement of favorable construction does not extend, however, to legal opinions or conclusions stated in the complaint but only to factual allegations and the facts "necessarily implied and fairly provable under the allegations." Forbes v. Ballaro, 31 Conn.App. 235, 239 (1993). The motion is to be tested by the allegations of the pleading, which allegations cannot be enlarged by the assumption of any facts not therein alleged. Alarm Applications Co. v. Simsbury Volunteer Fire Co., 179 Conn. 541, 549-50 (1980). The motion is properly granted if the complaint alleges mere conclusions of law unsupported by the facts alleged. Fidelity Bank v. Krenisky, 72 Conn.App. 700, 720 (2002); Donar v. King Associates, Inc., 67 Conn.App. 346, 349 (2001).
Second Count
The Second Count asserts the defendant breached a contractual duty of good faith and fair dealing owed member physicians. Incorporating the allegations of the First Count (for breach of contract) as earlier referenced, Paragraph 37 asserts the defendant's failure "to disclose any targets, standards, formulae, or results" which "has made it impossible to assess whether any physician is ever entitled to return of any fraction of the funds withheld pursuant to the Withhold Clause." Paragraph 38 asserts that "by failing to create and disseminate such standards, defendant has made it impossible for any physician to actually be entitled to return of any fraction of the funds (sic) withheld pursuant to that clause."
The defendant has argued the plaintiff has failed to allege any facts — as opposed to unsubstantiated conclusions — which demonstrate the defendant's bad faith. "Bad faith is not simply bad judgment or negligence, but rather it implies the conscious doing of a wrong because of dishonest purpose or moral obliquity . . . it contemplates a state of mind affirmatively operating with furtive design or ill will." Buckman v. People Express, Inc., 205 Conn. 166, 171 (1987). Proof of mere negligence fails to support a showing of dishonest purpose. Wadia Enterprises, Inc. v. Hirschfeld, 224 Conn. 240, 248-49 (1992). The lynchpin of a bad faith claim is a state of mind characterized by an intent to mislead or deceive or defraud. Id. The question then is: What specifically in the Second Count asserts dishonest purpose, furtive design, ill will or an intent to deceive or defraud? The answer lies in Paragraphs 10 and 15 of the First Count — incorporated into the Second Count. Paragraph 10 alleges the reason is "the single purpose of improperly retaining funds" which, while concededly awkward in its construction, can be broadly construed to allege the defendant's motive was to keep the money for itself. More pointedly, Paragraph 15 alleges "secret exemptions" to the Withhold Clause are applied to certain physicians and/or their practices which "further the financial interests of defendant and/or HealthNet." Together, and broadly construed as this court must construe the complaint's allegations in adjudicating a motion to strike, these paragraphs assert the defendant's intent to subjugate — if not sacrifice — the physician's interests in service of its financial objectives. What is alleged is more than a simple breach of contract. The defendant ignores that, in deciding a motion to strike, the court must also assume the truth of any facts fairly provable under the factual allegations expressly stated and, in doing so, misperceives the function of a motion to strike. "Secret exemptions" and a singular purpose to wrongly retain funds is a claim of deceitful and dishonest purpose — particularly where, as here, it is alleged the defendant represented to physicians they would protect their financial and professional interests in such negotiations. First Count, Paragraph 3 (incorporated in Second Count). Bad faith implies, inter alia, "a neglect or refusal to fulfill some duty or some contractual obligation not prompted by an honest mistake as to one's rights or duties, but by some interested or sinister motive." Habetz v. Condon, 224 Conn. 231, 237 (1992). The Second Count thus satisfies the requirement of Habetz and the motion to strike this count is denied.
The Third Count alleges a violation of the Connecticut Unfair Trade Practices Act (CUTPA), Connecticut General Statutes §§ 42-110a et seq. It incorporates all of the factual allegations of the Second Count. Connecticut General Statutes § 42-110b(a) provides no person "shall engage in unfair methods of competition and unfair or deceptive acts or practice in the conduct of any trade or commerce." This state has adopted the "cigarette rule" for determining whether a particular practice is unfair. Under that rule, a practice is "unfair" if: a) without necessarily being unlawful, it offends some public policy as established either by common law or statute; b) it is immoral, unethical, oppressive, or unscrupulous; c) it causes substantial injury to consumers, competitors or other businessmen. Jacobs v. Healey Ford-Subaru, Inc., 231 Conn. 707, 725 (1995). The practice need not satisfy all three criteria; it is sufficient that it meets any one of the three if the offending conduct is sufficiently unfair or deceptive or unscrupulous or offensive. Web Press Services Corp. v. New London Motors, Inc., 203 Conn. 342, 355 (1987).
While the complaint states it incorporates paragraphs 1-36 of the First Count (incorporated as paragraphs 1-36 of the Second Count), paragraphs 37 and 38 of the Third count are in fact a replication of paragraphs 37 and 38 of the Second Count. Thus, the only variance between the Second and Third Counts is paragraph 39 which asserts a CUTPA violation.
The defendant's arguments are as stated with regard to the Second Count — specifically, that this count is nothing more than a restatement of the First Count's breach of contract claim and fails because merely conclusory. Defendant's memorandum, pp. 5-7. The plaintiff points to the language of paragraph 15 of this count. There, he alleges:
Although the ostensible purpose of the Withhold Clause is to create proper financial incentives for physicians, agents of defendant and of HealthNet have acknowledged that in fact defendant and/or HealthNet have created and continue to create and apply secret exemptions to the Withhold Clause to certain physicians and physician practices, when defendant and/or HealthNet deem it in the financial interest of defendant and/or HealthNet to do so. These exemptions subvert the purpose of the Withhold Clause while furthering the financial interests of defendant and/or HealthNet. These exemptions also inflate the aggregate cost of medical and surgical services and products provided by Dr. Ravski and other physicians party to the Agreement, thereby preventing the amount actually paid from being reflective of any incentive to ensure proper utilization and/or suppress over-utilization.
At first blush, Count Three poses a conundrum. While Paragraph 15 of the First Count alleges more than is necessary to assert a simple breach of contract (because more than simply asserting the defendant did not, at year's end, do the necessary calculation to return to physicians withheld funds, the plaintiff attributes to the defendant a corporate greed that not only subverts the physicians' interests by the creation of "secret exemptions" but also inflates patient costs), Count Three asserts the very same allegation. It is deceptively simple therefore to conclude, as the defendant does, that Count Three is no more than a breach of contract claim. The flaw in the defendant's argument is that it requires the court to do more than is appropriate when ruling on a motion to strike. The court's function is not to determine whether the alleged conduct is in fact a violation of public policy and commonly held principles of fair and ethical behavior — and thereby violates CUTPA; that is for the trier of fact to determine. The court's function here is merely to examine the complaint, construed in favor of the pleader, to determine whether a cause of action has been pled. To penalize the plaintiff for a pleading choice to include the language of Paragraph 15 of the First Count (reasserting it in the Third Count) rather than to preserve its inclusion for the Third Count exclusively is to ignore again both that the Third Count does more than plead a simple breach of contract and that it pleads specific facts to support the assertion of a CUTPA claim. Moreover, it is well established that bad faith conduct in the context of contractual duties may constitute a violation of CUTPA. The motion is denied as to the Third Count.
In that regard, the defendant cites only those cases which address what a court may not do in adjudicating this motion and ignores the body of law which enunciates the function of this motion and under what circumstances a court must grant the motion; the effect, it is suggested, is to misdirect the defendant's focus. See "Argument" — aptly described — on p. 3 of the defendant's memorandum.
See e.g., Stetzer v. Dunkin Donuts, Inc., 87 F.Sup.2d 104, 115 (D.Conn. 2000); Gebbie v. Cadle Co., 49 Conn.App. 265, 278-79 (1998); Lester v. Resort Camplands International, Inc., 27 Conn.App. 59, 71 (1992).
The Fourth Count alleges the defendant breached a fiduciary duty owed the plaintiff. It begins by incorporating the first thirty-six paragraphs of the First, Second and Third Counts. In Paragraph 37, plaintiff asserts (as in, prior counts) the defendant has consistently represented to parties to the Agreement it would "act on the physicians' best interests" and would "advance and protect the professional and financial interests" of the physicians. Paragraph 38 provides the defendant had exclusive control of all financial information that "is or could be used to develop any targets, standards, or formulae under which the Withhold Clause calculations are or could be made" and all information "that is or could be used to determine whether all physicians, or any given physician, have or has met any such targets, or to determine the amount of withheld funds which should be returned to all or any individual physician." Paragraph 39 provides the defendant's policy is "to prevent physicians from having access to" information described in "Paragraph 39 of this Third Count." Paragraph 40 pleads the representations made by defendant to physicians and the defendant's exclusive control of all relevant financial information established a fiduciary duty to the plaintiff to set standards and targets so as to maximize the return of funds under the Withhold Clause and to make "all relevant calculations in such physicians' best interests." Paragraph 41 alleges a fiduciary duty to disclose "the targets, standards and/or formulae under which the physicians' right to return of withheld funds is to be calculated, as well as the actual financial performance under such targets, standards or formulae during each Withhold Period."
This is an obvious error caused by failure to proofread. Clearly, it was intended to refer to Paragraph 38 of this the Fourth Count.
Defendant argues no fiduciary relationship existed and points to Article VIII, Paragraph 5 of the Agreement which provides the parties' relationship "shall be that of independent contractor" and that neither "shall be construed to be the agent, the employer or the representative by the other." The plaintiff's response is that the defendant negotiated fees on behalf of its members with HealthNet (as it has pled) and that the defendant's role as negotiator imposed upon it the claimed fiduciary relationship. The court is unpersuaded.
It is so that the decisional law of this state has traditionally refrained from defining "fiduciary relationship" precisely. Our Supreme court has, however, said a fiduciary or confidential relationship is "characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the interests of the other . . ." (Citations omitted.) Murphy v. Wakelee, 247 Conn. 396, 400 (1998). The fiduciary must undertake a legal duty to sacrifice its own interests to that of the other's interest. See Hi-Ho Tower, Inc. v. Com-Tronics, Inc., 255 Conn. 20, 42 (2000). "The fact that one business person trusts another and relies on the person to perform its obligations does not rise to the level of a confidential relationship for purposes of establishing a fiduciary duty." (Citation omitted.) Id., at 41. The complaint explicitly provides the defendant's duty to protect the financial and professional interests was with regard to negotiation of medical fees it undertook with HealthNet on behalf of physicians. That a given employee's supervisor with special knowledge of that employee's employment skills undertakes to negotiate that employee's salary increase with the employer imposes a duty upon the supervisor to represent that employee's financial and career interest but it does not create a confidential relationship that rises to the level of a fiduciary relationship. Moreover, the harm alleged by the plaintiff was not the alleged outgrowth of either the fees negotiated with HealthNet nor the failure of the defendant to negotiate in good faith. The alleged misconduct occurred not in the arena of the negotiation process but in the creation of special (and secret) exemptions that, together with so-called utilization standards, resulted in the claimed wrongful detention of refunds under the Withhold Clause of the Agreement. While the relationship between these parties may or may not have been what defendant describes as an arm's length transaction (Memorandum, pp. 10-11), the Fourth Count must fall for failure to assert facts giving rise to the existence of a fiduciary relationship. The motion to strike this count is granted.
Paragraph 3 of the First count (incorporated as Paragraph 3 of the Fourth Count) provides, "Defendant routinely and consistently holds itself out to Connecticut physicians, including Plaintiff, as their agent in negotiations with HealthNet, and represents to those physicians that it protects their financial and professional interests in such negotiations (emphasis added)."
Fifth Count
This count asserts the defendant's continued withholding and refusal to pay over all of the withheld funds without legal justification has "unjustly enriched" the defendant "at Plaintiff's expense, to the extent of the funds withheld." Fifth Count, paragraph 38. Unjust enrichment is a doctrine allowing damages for restitution, that is "the restoration to a party of money, services or goods of which he or she was deprived that benefitted another . . . The lack of a remedy under a contract is a precondition to recovery based on unjust enrichment or quantum meruit." (Citations omitted.) United Coastal Industries, Inc. v. Clearheart Construction Co., 71 Conn.App. 506, 512 (2002). The Fifth Count incorporates paragraphs 1-36 of the First Count and therefore it contains allegations of an express contract between the parties (First Count, Paragraph 4). The First and Fifth Counts further expressly allege successor agreements to Ravski's original agreement of March 25, 1987. Id. Without citation to any legal authority or any legal analysis, the plaintiff, rather than conceding the debate, sidesteps the issue by stating the Fifth Count, while incorporating Paragraphs 1-36 of the First Count, also alleges faithless negotiations, the use of arbitrary and undisclosed depositions to withhold funds, etc. and that breach of contract is not the crux of the Fifth Count. Memorandum in Opposition, at p 24. No denial of the existence of an express contract can be made. While, pursuant to Practice Book § 10-25 and Dreier v. Upjohn Co., 196 Conn. 242, 245 (1985), the plaintiff may plead in the alternative (claiming alternative relief based upon alternative construction of the causes of action), Practice Book § 10-26 requires such alternative pleading must be set forth in separate counts. As stated, this count combines both causes of action. The motion is granted as to the Fifth Count.
This alternative is not available to the plaintiff in view of the existence of a remedy under the contract. See United Coastal, supra.
The Motion to Strike is denied as to the Second and Third Counts of the Revised Complaint; it is granted as to the Fourth and Fifth Counts.
SHEEDY, J.