Take Two: Ninth Circuit Reverses Class Win Against United Behavioral Health

Wit v. United Behav. Health, No. 20-17363, __F.4th__, 2023 WL 411441 (9th Cir. Jan. 26, 2023) (Before: Christen and Forrest, Circuit Judges, and Anello, District Judge).

The Ninth Circuit issued an unpublished memorandum in this matter on March 22, 2022. We wrote about the decision here. After the Plaintiffs filed a petition for rehearing, with amicus support, the Ninth Circuit issued this published opinion.

United Behavioral Health (“UBH”) is a large managed healthcare organization that administers insurance benefits for mental health conditions and substance use disorders for commercial health benefit plans. The individually named plaintiffs are beneficiaries of ERISA-governed health plans that UBH administered and whose claims for coverage UBH denied. UBH appealed from the district court’s judgment finding it liable to three classes of plaintiffs under ERISA Sections 502(a)(1)(B) and 502(a)(3) on the basis that UBH improperly developed and relied on internal guidelines that were inconsistent with the terms of the class members’ plans and with state-mandated criteria. UBH challenged the district court’s orders with respect to plaintiffs’ Article III standing, class certification, summary judgment, and remedies.

First, the court found that the plaintiffs did have Article III standing. They sufficiently alleged a concrete injury as to their fiduciary duty claim where they alleged that UBH administered their plans with a financial conflict of interest which presented a material risk of harm to their right to have their benefits administered in their best interest and in accordance with their plan terms. They also suffered a present harm of not knowing the scope of coverage their plans provide which impacts their ability to make decisions about their health coverage. The court also found that the plaintiffs alleged a concrete injury as to the denial of benefits claim where they alleged that UBH’s arbitrary and capricious adjudication of benefits presented a material risk to their interest in the fair adjudication of their entitlement to benefits. The court found that the allegations of their injuries were particularized, that is, affected them in a personal and individual way. The Guidelines that UBH developed apply to the benefits for each individual class member. The alleged injuries are traceable to UBH because they are all connected to UBH’s alleged conduct of improperly developing Guidelines.

Second, on the issue of class certification, the court agreed with UBH that the district courts’ certification of the three classes for the Section 502(a)(1)(B) claim based on the plaintiffs’ “reprocessing theory” was a violation of Rule 23 of the Rules of Civil Procedure and the Rules Enabling Act. The plaintiffs did not seek an order from the court finding that the class members were owed benefits, only that UBH should reprocess the claims using the correct guidelines. The court found that reprocessing is not truly the remedy that the plaintiffs seek, it is a means to the remedy that they seek. However, the plaintiffs disclaimed the actual remedy available to them under Section 502(a)(1)(B) in order to satisfy Rule 23’s commonality requirement. The district court abused its discretion in accepting the view that reprocessing itself is a remedy independent from the express statutory remedies that Congress created. Doing so enabled the plaintiffs to use Rule 23 as a way to enlarge or modify their substantive rights where ERISA does not provide reprocessing as a standalone remedy. The court also found that the reprocessing remedy does not fall under Section 502(a)(3). Neither the plaintiffs nor the district court explained how reprocessing constituted relief typically available in equity.

Third, on the merits of the plaintiffs’ claims, the court disagreed with the district court that UBH abused its discretion by interpreting the terms of the plans. The court explained: “The Plans exclude coverage for treatment inconsistent with [generally accepted standards of care (“GASC”)] or otherwise condition treatment on consistency with GASC. While the GASC precondition mandates that a treatment be consistent with GASC as a starting point, it does not compel UBH to cover all treatment that is consistent with GASC. Nor does the exclusion—or any other provision in the Plans—require UBH to develop Guidelines that mirror GASC. And while treatment consistent with GASC is a precondition to coverage, there are other Plan provisions that still exclude certain treatments even if they are consistent with GASC. Thus, if UBH had interpreted the GASC exclusion to mandate coverage for and consistency with GASC, these other exclusions would be rendered nugatory.” The court concluded that the Guidelines did not require coverage for all care consistent with GASC and the district court erred by substituting its interpretation of the plans for UBH’s interpretation.

Lastly, and significantly, the court found that the district court erred when it excused unnamed class members from demonstrating compliance with the plans’ mandatory exhaustion requirements. When an ERISA plan explicitly mandates exhaustion of administrative procedures before bringing suit in court, and provides no exceptions, application of judicially created exhaustion exceptions would conflict with the written terms of the plan which is inconsistent with the Rule Enabling Act.