Ninth Circuit Holds Assignee of Bankrupt Healthcare Provider’s Health Benefit Claims Has Derivative Standing to Sue under ERISA

Bristol SL Holdings, Inc. v. Cigna Health & Life Ins. Co., No. 20-56122, __F.4th__, 2022 WL 129139 (9th Cir. Jan. 14, 2022) involves a dispute between Sure Haven, a now bankrupt mental healthcare treatment center, and Cigna Health and Life Insurance Company over approximately $8.6 million in services that Sure Haven provided to Cigna’s insureds. Sure Haven went bankrupt after Cigna stopped reimbursing it for services. Cigna stopped making payments because it claimed that Sure Haven was violating the benefit plan’s requirement of collecting the portion of payment due from the members themselves in addition to collecting the portion due from Cigna. Bristol SL Holdings, Inc. purchased Sure Haven’s claims against Cigna in Sure Haven’s bankruptcy proceeding, and then Bristol sued Cigna under ERISA as Sure Haven’s assignee.

The district court dismissed Bristol’s ERISA claim against Cigna for lack of standing. The district court found that neither ERISA’s text nor Ninth Circuit case law granted standing to an assignee of a healthcare provider. Specifically, the district court applied the Ninth Circuit’s decision in Simon v. Value Behav. Health, Inc., 208 F.3d 1073, 1081 (9th Cir.), amended, 234 F.3d 428 (9th Cir. 2000), and overruled on other grounds by Odom v. Microsoft Corp., 486 F.3d 541 (9th Cir. 2007), where the Ninth Circuit found that an attorney who had purchased over 600 benefit claims assigned to him by numerous mental health facilities (who had been assigned those claims by patients) did not have standing under ERISA to sue for the denied claims. The district court read Simon to stand for the general proposition that derivative standing cannot be extended to assignees of healthcare providers in any circumstance.

The Ninth Circuit found that the concerns behind the reasoning in Simon, including transforming health benefit claims into a freely tradable commodity, do not apply in this case. Simon involved the aggregation of hundreds of unrelated claims from numerous different health facilities and numerous lawsuits filed across the nation against approximately 1,600 defendants. Simon had no relationship with the ultimate beneficiaries and acquired the claims for the sole purpose of litigation. Here, Bristol is the successor-in-interest to Sure Haven through bankruptcy proceedings and is only bringing claims that belonged to Sure Haven, which were all denied for the same reason. Allowing Bristol’s claim to bring a cause of action under ERISA fits comfortably within ERISA case law that recognizes that assignees are generally allowed to bring suit on behalf of the assignor. See Misic v. Bldg. Serv. Emps. Health & Welfare Tr., 789 F.2d 1374, 1377 (9th Cir. 1986). It would also align with the general goal of ERISA. The court explained: “Without the type of derivative standing claimed by Bristol in this case, Cigna could force healthcare providers like Sure Haven into bankruptcy, thereby ensuring that it would likely never have to pay for the services it authorized. Against such a harsh legal backdrop, future providers like Sure Haven would be forced to require patients to foot the entire bill up front (which many would be unable to do), and then make those patients seek reimbursement from the insurer for its share. Our court has already recognized this concern when it allowed derivative standing for healthcare providers.”

The court further explained that its ruling “is a modest one: We hold only that the first assignee as a successor-in-interest through bankruptcy proceedings who owns all of one healthcare provider’s health benefit claims has derivative standing. Granting Bristol standing here is consistent with Misic, is not inconsistent with Simon, and furthers the purpose of ERISA.”

In a separate unpublished opinion, Bristol SL Holdings, Inc. v. Cigna Health and Life Insurance Company, No. 20-56122, 2022 WL 137547 (9th Cir. Jan. 14, 2022), the Ninth Circuit determined that the district court erred by granting Cigna’s motion for summary judgment on Bristol’s breach of contract and promissory estoppel claims and reversed the dismissal of these claims. The court did affirm the district court’s dismissal of Bristol’s fraudulent inducement claim because of insufficient allegations. Bristol only alleged that an unidentified “senior person at Cigna” secretly decided to stop paying Sure Haven while still authorizing ongoing treatment for its patients. The court found that this does not meet the required heightened pleading standards. The court also affirmed the district court’s denial of Bristol’s motion for leave to file a third amended complaint to add a cause of action for an open book account since it did not attempt to add this claim in its previous amendments and the case began over a year before it attempted to add this new cause of action.