American Dental Assoc. v. Cigna Corp. , 605 F.3d 1283 ( 2010 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
U.S. COURT OF APPEALS
No. 09-12033 ELEVENTH CIRCUIT
MAY 14, 2010
JOHN LEY
CLERK
D. C. Docket Nos. 03-21266 CV-FAM
00-1334-MD-FAM
AMERICAN DENTAL ASSOCIATION, in an
associational capacity on behalf of its members,
JOHN MILGRAM, DDS,
SCOTT A. TRAPP, DDS, individually and
on behalf of all other similarly situated,
BYRON C. DESBORDES,
Plaintiffs-Appellants,
versus
CIGNA CORPORATION,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY,
CIGNA DENTAL HEALTH, INC., METLIFE, INC.,
METROPOLITAN LIFE INSURANCE COMPANY,
MUTUAL OF OMAHA INSURANCE COMPANY,
Defendants-Appellees.
Appeal from the United States District Court
for the Southern District of Florida
(May 14, 2010)
Before DUBINA, Chief Judge, FAY, Circuit Judge, and ALBRITTON,* District
Judge.
DUBINA, Chief Judge:
The question presented in this appeal is whether, under Fed. R. Civ. P. 9(b)
and the pleading standard recently articulated by the Supreme Court in Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007) and Ashcroft v.
Iqbal, __ U.S. __, 129 S. Ct. 1937 (2009), Plaintiffs/Appellants (“Plaintiffs”) have
sufficiently pled factual allegations in their RICO complaint to survive a motion to
dismiss. After reviewing the briefs and record and having the benefit of oral
argument, we affirm the district court order dismissing the complaint.
I. BACKGROUND
Plaintiffs are three dentists practicing in Illinois, Nebraska, and Maryland.
The American Dental Association (“ADA”), a non-profit dental association
headquartered in Chicago, also asserts representational standing on behalf of its
members. The defendants/appellees are dental insurance companies: Cigna
Corporation, Connecticut General Life Insurance Company, Cigna Dental Health,
Inc., MetLife Inc., and Metropolitan Life Insurance Company (“Defendants”).
Plaintiffs contracted with Defendants to provide dental services to Defendants’
*
Honorable W. Harold Albritton, United States District Judge for the Middle District of
Alabama, sitting by designation.
2
members through dental service managed care plans. Plaintiffs now assert
violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”),
18 U.S.C. §§ 1961–1968 (2006), as well as state law claims for breach of contract
and tortious interference with contractual relations and existing and prospective
business expectations. More specifically, Plaintiffs allege, on behalf of
themselves and a putative class of similarly-situated dentists, that Defendants
“engaged in a systematic, fraudulent scheme to diminish payments to Class
Plaintiffs through automatic downcoding, Current Dental Terminology (‘CDT’)
code manipulation and improper bundling.”2 D.E. 111, at ¶ 3.
Plaintiffs filed this purported class action lawsuit in the Southern District of
Florida in May 2003. The case was originally assigned to Judge Adalberto Jordan.
2
The Council on Dental Benefit Programs created an educational manual to include the
Code on Dental Procedures and Nomenclature (“the Code”). Current Dental Terminology, Fifth
Edition (“CDT”) contains recent revisions to the Code. The Code, which is designed as the
national standard for reporting dental services by the Federal Government under the Health
Insurance Portability and Accountability Act of 1996 (“HIPAA”), is currently recognized by
third-party payers, including Defendants, nationwide. An underlying purpose of the Code is to
provide a uniform language that accurately describes the dental, surgical and diagnostic services
a dental service provider has rendered, thereby giving Defendants or their designated payers the
information they need to process a claim for payment. To claim reimbursement for dental
services, dental health care providers complete a standardized form incorporating a CDT coding
system through which procedures are identified by standardized designations. Plaintiffs allege
that Defendants utilized automated programs to manipulate procedure codes on submitted claim
forms and thereby reduce the amount paid for dental services. According to Plaintiffs’
complaint, “downcoding” reduces or denies payment of claims submitted by dental providers by
changing the CDT code assigned to a particular service to a less expensive CDT code. D.E. 111,
at ¶ 40. “Bundling” reduces or denies payment of claims by combining the CDT codes of two or
more appropriately performed and billed procedures into one CDT code. Id. at ¶ 41.
3
Defendants moved to dismiss the RICO and state law claims in the original
complaint. On March 30, 2005, Judge Jordan dismissed all of the RICO
allegations without prejudice on the ground that Plaintiffs’ RICO enterprise
allegations were deficient. Plaintiffs filed their first amended complaint on April
18, 2005. On June 30, 2005, while Defendants’ motion to dismiss the first
amended complaint was pending, Judge Jordan transferred the case to Judge
Frederico Moreno as a case related to the In re Managed Care Litigation Multi-
District Litigation (“Managed Care MDL”), 00-MD-1334, an MDL that has been
ongoing in the Southern District of Florida since 2000.3 On November 28, 2005,
Judge Moreno designated the case as a tag-along action within the Managed Care
MDL and closed it for statistical purposes.
In February 2008, Judge Moreno denied all pending motions in the case
with leave to re-file, and requested status reports. During the roughly two-year
lull in activity in this case, the United States Supreme Court decided Bell Atlantic
3
The Managed Care MDL was originally limited to claims brought by medical doctors
against Humana, Inc., a nationwide managed care organization, and other “major HMOs,” see
Klay v. Humana, Inc., 382 F.3d 1241, 1249–50 (11th Cir. 2004), but grew to include many
disputes between healthcare providers of all kinds (e.g., chiropractors, obstetricians and
gynecologists, and dentists) and managed care companies who use computer software programs
to process claims. Providers have, among other things, claimed RICO violations, alleging that
managed care entities, acting individually and as part of a conspiracy, developed and used certain
claims processing, claims payment and/or other practices in order to “deny, delay, and diminish”
payments allegedly owed. See id. at 1247 & n.1. Among the complained-of practices are
“downcoding” and “bundling.” See id. at 1248.
4
Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007). Although the district
court had not ruled on the motion to dismiss the first amended complaint,
Plaintiffs sought and received Defendants’ consent to file a motion seeking leave
to file a second amended complaint.
On May 1, 2008, Plaintiffs filed their Second Amended Complaint, which is
at issue in this appeal. The complaint contains six counts. Counts I-IV are federal
RICO and RICO-related claims: RICO conspiracy under 18 U.S.C. § 1962(d)
(Count I), a claim for aiding and abetting RICO violations under 18 U.S.C. § 2(Count II), a substantive RICO claim under 18 U.S.C. § 1962(c) (Count III), and a
claim for declaratory relief under 18 U.S.C. § 1964(a) and 28 U.S.C. § 2201 for
RICO violations (Count IV). Counts V and VI are state law claims for breach of
contract and tortious interference with contractual relations and with existing and
prospective business expectancies, respectively.
On June 6, 2008, Defendants moved to dismiss Counts I-IV and VI of the
Second Amended Complaint. They did not move to dismiss the breach of contract
claim (Count V). After briefing, on February 11, 2009, the district court issued a
written order granting the motion to dismiss without prejudice. The court held
that all four RICO claims were deficiently alleged. Citing Twombly, the court held
that Plaintiffs’ substantive RICO allegations “fail to set forth a violation of §
5
1962(c) that is ‘plausible on its face’ because they do not raise a right to relief
‘above [the] speculative level.’” In re Managed Care Litig., No. 03-21266-CIV,
2009 WL 347795, at *4 (S.D. Fla. Feb. 11, 2009) (quoting Twombly, 550 U.S. at
570, 555, 127 S. Ct. at 1974, 1965). The court also found the conspiracy claim
lacking because the Second Amended Complaint did “not contain sufficient
factual allegations about the Defendants agreeing with other entities and/or
persons to engage in the ongoing criminal conduct of an enterprise.” Id. The
court held that the remaining RICO claims were deficient for similar reasons.
The district court, however, gave Plaintiffs a chance to file another amended
complaint by February 26, 2009. It directed Plaintiffs to “conform with the
pleading requirements announced in Twombly and applied by this Court in
Solomon and Genord,” id. at *7, which are two cases also involved in the
Managed Care MDL. See Solomon v. Blue Cross & Blue Shield Ass’n, 574 F.
Supp. 2d 1288 (S.D. Fla. 2008) (dismissing complaint for failure to state a claim
under Twombly); Genord v. Blue Cross & Blue Shield of Mich., No. 07-21688-
CIV, 2008 WL 5070149 (S.D. Fla. Nov. 24, 2008) (same). The court warned that
similar failure to comply with the new pleading standard would result in dismissal
with prejudice. In re Managed Care Litig., 2009 WL 347795, at *8.
6
On February 23, 2009, Plaintiffs sought an extension of time to file a third
amended complaint. On February 24, 2009, the district court denied that motion,
stating:
Given the history of this particular case and the consistent
insufficiencies of the Plaintiffs’ allegations, the Court would likely
have had sufficient justification to dismiss Counts I-IV and VI of the
Second Amended Complaint with prejudice. Because the plaintiffs
are operating under newer, more stringent pleading requirements, the
Court decided to afford them one last bite at the proverbial apple. . . .
At this point, the factual averments necessary to satisfy Twombly are
either readily included in yet another amended complaint, or simply
do not exist.
D.E. 143, at 2. Plaintiffs never filed a third amended complaint. On March 2,
2009, the district court dismissed Counts I-IV and VI with prejudice. The district
court entered a final order on March 23, 2009, declining to exercise supplemental
jurisdiction over Count V and dismissing the case in its entirety. Plaintiffs now
appeal the dismissal of the RICO and RICO-related claims in their complaint.
II. STANDARD OF REVIEW
“We review de novo the district court’s grant of a motion to dismiss under
Rule 12(b)(6) for failure to state a claim, accepting the allegations in the complaint
as true and construing them in the light most favorable to the plaintiff.” Mills v.
7
Foremost Ins. Co., 511 F.3d 1300, 1303 (11th Cir. 2008) (quoting Castro v. Sec’y
of Homeland Sec., 472 F.3d 1334, 1336 (11th Cir. 2006)).
III. DISCUSSION
A. Twombly and Iqbal
Because the present case reflects the concerns that motivated the Supreme
Court to adopt a new pleading standard in Twombly and Iqbal, a brief discussion
of those decisions is warranted.
Fed. R. Civ. P. 8(a)(2) requires that a pleading contain “a short and plain
statement of the claim showing that the pleader is entitled to relief” in order to
“give the defendant fair notice of what the . . . claim is and the grounds upon
which it rests.” Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 103 (1957). In
Twombly, the Supreme Court expressly “retired” the “no set of facts” pleading
standard under Rule 8(a)(2) that the Court had previously established in Conley v.
Gibson. Twombly, 550 U.S. at 563, 127 S. Ct. at 1969. Justice Black wrote for the
Court in Conley of “the accepted rule that a complaint should not be dismissed for
failure to state a claim unless it appears beyond doubt that the plaintiff can prove
no set of facts in support of his claim which would entitle him to relief.” 355 U.S.
at 45–46, 78 S. Ct. at 102. In rejecting that language, the Court in Twombly noted
that courts had read the rule so narrowly and literally that “a wholly conclusory
8
statement of claim would survive a motion to dismiss whenever the pleadings left
open the possibility that a plaintiff might later establish some set of undisclosed
facts to support recovery.” 550 U.S. at 561, 127 S. Ct. at 1968 (internal quotation
marks and alterations omitted).
In Twombly, the plaintiffs alleged an antitrust conspiracy among certain
regional telecommunications providers in violation of the Sherman Act, 15 U.S.C.
§ 1 (2006). Id. at 550, 127 S. Ct. at 1962. Their complaint relied on allegations of
the defendants’ parallel behavior to allege the conspiracy. Id. The Supreme Court
granted certiorari to address the proper standard for pleading an antitrust
conspiracy through allegations of parallel conduct. Id. at 553, 127 S. Ct. at 1963.
Justice Souter, writing for a substantial majority, first noted:
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does
not need detailed factual allegations, a plaintiff’s obligation to
provide the grounds of his entitlement to relief requires more than
labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.
Id. at 555, 127 S. Ct. at 1964–65 (internal quotation marks, citations, and
alterations omitted). The Court explained that “[f]actual allegations must be
enough to raise a right to relief above the speculative level . . . on the assumption
that all the allegations in the complaint are true (even if doubtful in fact).” Id. at
555, 127 S. Ct. at 1965. The Court ultimately held that to survive a motion to
9
dismiss, a complaint must now contain sufficient factual matter, accepted as true,
to “state a claim to relief that is plausible on its face.” Id. at 570, 127 S. Ct. at
1974. Cautioning that its new plausibility standard is not akin to a “probability
requirement” at the pleading stage, the Court nonetheless held that the standard
“calls for enough fact to raise a reasonable expectation that discovery will reveal
evidence” of the claim. Id. at 556, 127 S. Ct. at 1965. The Court was careful to
note that “we do not require heightened fact pleading of specifics,” but concluded
that when plaintiffs “have not nudged their claims across the line from conceivable
to plausible, their complaint must be dismissed.” Id. at 570, 127 S. Ct. at 1974.
Finding that the plaintiffs’ complaint did not plausibly suggest an illegal
conspiracy by merely alleging parallel conduct—because such parallel conduct
was more likely explained by lawful, independent market behavior—the Court
held that the district court properly dismissed the complaint. Id. at 567–70, 127 S.
Ct. at 1972–74.
The Supreme Court has since applied the Twombly plausibility standard to
another civil action, Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009). Iqbal involved a
Bivens action brought by a Muslim Pakistani who had been arrested and detained
following the September 11, 2001, terrorist attacks. Id. at 1943. He sued current
and former federal officials, including John Ashcroft, former Attorney General of
10
the United States, and Robert Mueller, the Director of the FBI. Id. at 1942. Iqbal
alleged that Ashcroft and Mueller adopted and implemented a detention policy for
persons of high interest after September 11, and that they designated him a person
of high interest on account of his race, religion, or national origin, in violation of
the First and Fifth Amendments to the Constitution. Id. at 1944. Iqbal’s
complaint alleged that Ashcroft was the “principal architect” of the policy and
identified Mueller as “instrumental in [its] adoption, promulgation, and
implementation,” but also stated that both men “knew of, condoned, and willfully
and maliciously agreed to subject” Iqbal to harsh conditions of confinement “as a
matter of policy . . . for no legitimate penological interest.” Id. at 1944 (alteration
in original).
In evaluating the sufficiency of Iqbal’s complaint in light of Twombly’s
construction of Rule 8, the Court explained the “working principles” underlying
its decision in that case. Id. at 1949. First, the Court held that “the tenet that a
court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions.” Id. Second, restating the plausibility standard,
the Court held that “where the well-pleaded facts do not permit the court to infer
more than the mere possibility of misconduct, the complaint has alleged—but it
has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 1950 (quoting
11
Fed. R. Civ. P. 8(a)(2)). The Court suggested that courts considering motions to
dismiss adopt a “two-pronged approach” in applying these principles: 1) eliminate
any allegations in the complaint that are merely legal conclusions; and 2) where
there are well-pleaded factual allegations, “assume their veracity and then
determine whether they plausibly give rise to an entitlement to relief.” Id.Importantly, the Court held in Iqbal, as it had in Twombly, that courts may infer
from the factual allegations in the complaint “obvious alternative explanation[s],”
which suggest lawful conduct rather than the unlawful conduct the plaintiff would
ask the court to infer. Id. at 1951–52 (quoting Twombly, 550 U.S. at 567, 127 S.
Ct. at 1972). Finally, the Court in Iqbal explicitly held that the Twombly
plausibility standard applies to all civil actions, not merely antitrust actions,
because it is an interpretation of Rule 8. Id. at 1953.
Applying these principles to Iqbal’s complaint, the Court began by
disregarding as wholly conclusory Iqbal’s allegations that Mueller was
“instrumental” in adopting the detention policy and Ashcroft was the “principal
architect” of the policy, and that they willfully agreed to subject Iqbal to harsh
treatment for a discriminatory purpose. Id. at 1951. The Court then determined
that the remaining factual allegations—that Mueller and Ashcroft approved the
FBI’s policy of arresting and detaining thousands of Arab Muslim men as part of
12
its investigation into the events of September 11—did not plausibly establish the
purposeful, invidious discrimination that Iqbal asked the Court to infer. Id. at
1951–52. The alternative inferences that could be drawn from the facts—namely,
that the arrests were likely lawful and justified by a nondiscriminatory intent to
detain aliens who were illegally present in the United States and who had potential
connections to those who committed terrorist acts—were at least equally
compelling. Id. Accordingly, the Court ruled that Iqbal’s complaint must be
dismissed. Id. at 1954.
With this precedent in mind, we now turn to the RICO allegations in
Plaintiffs’ Second Amended Complaint.
B. Plaintiffs’ Allegations of the Predicate Acts of a Pattern of
Racketeering Activity under 18 U.S.C. § 1962(c)
Section 1962(c) of the RICO statutes requires that a plaintiff prove that a
defendant participated in an illegal enterprise “through a pattern of racketeering
activity.” 18 U.S.C. § 1962(c). “Racketeering activity” is defined to include such
predicate acts as mail and wire fraud. 18 U.S.C. § 1961(1). “Mail or wire fraud
occurs when a person (1) intentionally participates in a scheme to defraud another
of money or property and (2) uses the mails or wires in furtherance of that
scheme.” Pelletier v. Zweifel, 921 F.2d 1465, 1498 (11th Cir. 1989). In order to
13
prove a pattern of racketeering in a civil or criminal RICO case, a plaintiff must
show at least two racketeering predicates that are related, and that they amount to
or pose a threat of continued criminal activity. H.J. Inc. v. Nw. Bell Tel. Co., 492
U.S. 229, 240, 109 S. Ct. 2893, 2901 (1989). “A party alleging a RICO violation
may demonstrate continuity over a closed period by proving a series of related
predicates extending over a substantial period of time.” Id. at 242, 109 S. Ct. at
2902.
Because Plaintiffs’ section 1962(c) claim is based on an alleged pattern of
racketeering consisting entirely of the predicate acts of mail and wire fraud, their
substantive RICO allegations must comply not only with the plausibility criteria
articulated in Twombly and Iqbal but also with Fed. R. Civ. P. 9(b)’s heightened
pleading standard, which requires that “[i]n alleging fraud or mistake, a party must
state with particularity the circumstances constituting fraud or mistake.” See also
Ambrosia Coal & Constr. Co. v. Pages Morales, 482 F.3d 1309, 1316 (11th Cir.
2007) (holding that civil RICO claims, which are “essentially a certain breed of
fraud claims, must be pled with an increased level of specificity” under Rule 9(b)).
We have held that pursuant to Rule 9(b), a plaintiff must allege: “(1) the precise
statements, documents, or misrepresentations made; (2) the time, place, and person
responsible for the statement; (3) the content and manner in which these
14
statements misled the Plaintiffs; and (4) what the defendants gained by the alleged
fraud.” Brooks v. Blue Cross & Blue Shield of Fla., Inc., 116 F.3d 1364, 1380–81
(11th Cir. 1997) (applying the requirements to a RICO fraud complaint). The
plaintiff must allege facts with respect to each defendant’s participation in the
fraud. Id. at 1381.
Plaintiffs’ complaint alleges that “[d]efendants represented in their on-line
advertising, in their provider agreements and in their fee schedules that their in-
network providers would be compensated for covered procedures based on
commonly accepted dental practice, standard coding practice and Defendants’ fee
schedules.” D.E. 111, at ¶ 28. Plaintiffs argue that these advertisements,
agreements, and fee schedules were fraudulent because they indicated benefits
payments lower than what Plaintiffs believed were due to them under their fee-for-
service agreements with Defendants, which Plaintiffs argue had promised them
timely specified payments “in accordance with standard dental coding
procedures.” D.E. 111, at ¶ 24. In other words, Plaintiffs contend that they
performed multiple procedures worthy of multiple or larger benefits payments, but
that Defendants bundled and downcoded the procedures into fewer claims worthy
of smaller payments. Additionally, Plaintiffs allege that the only way the alleged
scheme of downcoding and bundling claims could work is if Defendants
15
“agree[d]” to employ the “same” devices and tactics. D.E. 111, at ¶ 9. Thus,
Plaintiffs do not allege parallel schemes among competing dental insurers; they
allege a single scheme consisting of identical conduct in which all Defendants
agreed to participate. Therefore, not only did Plaintiffs need to plausibly and
particularly allege facts showing related instances of mail and wire fraud, but also
plausibly allege facts showing that a conspiracy created the alleged scheme.
Though the complaint sets out at least six examples of e-mail and letter
communications between Defendants and Plaintiffs, including online
advertisements, fee schedules, contracts, and Explanations of Benefits (“EOBs”)
documents, D.E. 111, at ¶¶ 28–33, 49–56, Plaintiffs do not point to a single
specific misrepresentation by Defendants regarding how Plaintiffs would be
compensated in any of these communications, nor do they allege the manner in
which they were misled by the documents, as they are required to do under Rule
9(b). We have held that a plaintiff must allege that some kind of deceptive
conduct occurred in order to plead a RICO violation predicated on mail fraud.
Am. United Life Ins. Co. v. Martinez, 480 F.3d 1043, 1065 (11th Cir. 2007)
(affirming dismissal of plaintiff’s substantive RICO claims where complaint did
not allege that defendants made any affirmative misrepresentations in the
mailings). Here, Plaintiffs’ complaint provides a list of mailings and wires,
16
without ever identifying any actual fraud. If the specific misrepresentations do not
exist, it follows that the complaint has not alleged a right to relief that is “plausible
on its face.” See Twombly, 550 U.S. 570, 127 S. Ct. at 1974.
For example, Plaintiffs do not allege any misrepresentations in the EOBs
because Plaintiffs allege in their complaint that the EOBs expressly informed
Plaintiffs when their claims were going to be bundled or downcoded and gave the
reasons for doing so. See D.E. 111, at ¶ 56 (“All Defendants have similarly
engaged in bundling and downcoding practices by noting on EOBs . . . that
‘services are not covered when billed with related primary procedures,’ ‘benefits
are not provided for this service as it is considered to be a part of, and inclusive to,
the primary services performed,’ or that, ‘based on information reported or in file,
a different procedure code has been assigned.’”). Plaintiffs have not shown how
they were misled by the EOBs if the language in the EOBs notified them about any
bundling or downcoding of particular procedures.
Nor does the complaint allege any misrepresentations in the online
advertisements. There are no allegations anywhere that the quoted language of the
advertisements is false. Read as a whole, they amount at most to puffery, not
fraud. See Byrne v. Nezhat, 261 F.3d 1075, 1111 (11th Cir. 2001) (noting that
claims of surgical success in medical journals “seem more akin to puffing than
17
actionable misrepresentations,” in dismissing a civil RICO complaint alleging
violations of section 1962(c) predicated on acts of mail fraud). Additionally,
Plaintiffs make no allegations as to who, if anyone, read the advertisements and
was misled by them.
Further, the complaint does not connect the allegedly fraudulent
communications to any particular acts of bundling or downcoding that Plaintiffs
find unacceptable. Counsel for Plaintiffs stated at oral argument that this lack of
particularity should be excused because they were at an “informational
disadvantage” as to exactly how Defendants’ software bundled and downcoded
submitted procedures. To the contrary, we think it telling that the three named
plaintiffs, Drs. Milgram, Trapp, and Desbordes, each received EOBs explaining
the reimbursement of specific procedures they had performed, yet the complaint
never offers any examples of which claims were bundled and downcoded.
Perhaps the closest Plaintiffs come to alleging a specific instance of fraud is in
paragraph 49 of the complaint, where they allege that “[d]efendants regularly sent
EOBs [to Plaintiffs] that inappropriately and automatically bundled x-ray
procedures with other procedures.” D.E. 111, at ¶ 49. However, Plaintiffs do not
allege other procedures with which the x-ray codes were bundled. This is at most
an allegation of possible parallel conduct without any allegation of an agreement
18
as to how Defendants would process x-ray billing codes as part of a greater
scheme. In fact, Plaintiffs do not allege how Defendants agreed to employ any of
these procedures as part of a long-term criminal enterprise predicated on acts of
mail and wire fraud. Simply specifying particular dates and contents of
communications cannot automatically constitute a valid claim that a defendant
violated 18 U.S.C. § 1962(c) without also plausibly alleging the existence of a
long-term criminal enterprise.
In sum, the Second Amended Complaint does not plausibly, under
Twombly, or particularly, under Rule 9(b), allege a pattern of racketeering activity
predicated on a scheme to commit acts of mail and wire fraud. We find no specific
misrepresentations in any of the communications Plaintiffs referenced, no
connection between the alleged misrepresentations and any particular acts of
downcoding or bundling, and no allegations as to how Defendants agreed to
engage in an illegal scheme to defraud dental providers. Plaintiffs may have a
difference of opinion from Defendants regarding the coding that was used in
processing their claims, but we cannot infer a scheme-driven deception from a
complaint that provides no details of fraud or conspiracy. Accordingly, we
19
conclude that the district court did not err in dismissing the substantive RICO
claim in the Second Amended Complaint for failure to state a claim.4
C. Plaintiffs’ Allegations of Conspiracy under 18 U.S.C. § 1962(d)
Section 1962(d) of the RICO statutes makes it illegal for anyone to conspire
to violate one of the substantive provisions of RICO, including § 1962(c). 18
U.S.C. § 1962(d). “A plaintiff can establish a RICO conspiracy claim in one of
two ways: (1) by showing that the defendant agreed to the overall objective of the
conspiracy; or (2) by showing that the defendant agreed to commit two predicate
acts.” Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935,
950 (11th Cir. 1997) (quoting United States v. Church, 955 F.2d 688, 694 (11th
Cir. 1992)). A plaintiff need not offer direct evidence of a RICO agreement; the
existence of conspiracy “may be inferred from the conduct of the participants.” Id.
at 950 (quoting Church, 955 F.2d at 695).
4
As somewhat of a last resort, Plaintiffs also argue that the district court did not dismiss
their substantive RICO claim on the basis that the allegations were insufficiently particularized
under Rule 9(b), but that its dismissal was solely grounded on what it held to be a lack of
plausibility under Twombly. We disagree because the district court referenced Rule 9(b) in the
section of its order specifically discussing the section 1962(c) claim. See In re Managed Care
Litig., 2009 WL 347795, at *3. But even if the district court did not apply the proper standard to
the substantive RICO claim, we need not resolve that issue if there is another basis for affirming
its judgment, because “we may affirm its judgment ‘on any ground that finds support in the
record.’” Lucas v. W.W. Grainger, Inc., 257 F.3d 1249, 1256 (11th Cir. 2001) (quoting Jaffke v.
Dunham, 352 U.S. 280, 281, 77 S. Ct. 307, 308 (1957)). The district court’s dismissal of the
substantive RICO claim is still due to be affirmed because Plaintiffs have not pleaded the claim
with sufficient particularity under Rule 9(b).
20
Here, the allegations in Plaintiffs’ complaint do not support an inference of
an agreement to the overall objective of the conspiracy or an agreement to commit
two predicate acts. In analyzing the conspiracy claim under the plausibility
standard, Iqbal instructs us that our first task is to eliminate any allegations in
Plaintiffs’ complaint that are merely legal conclusions. 129 S. Ct. at 1950.
Plaintiffs offer conclusory statements such as “[d]efendants have not undertaken
the above practices and activities in isolation, but instead have done so as part of a
common scheme and conspiracy,” D.E. 111 at ¶ 67, and “[e]ach Defendant and
member of the conspiracy, with knowledge and intent, agreed to the overall
objective of the conspiracy, agreed to commit acts of fraud to relieve Class
Plaintiffs of their rightful compensation, and actually committed such acts.” D.E.
111, at ¶ 68. These are the kinds of “formulaic recitations” of a conspiracy claim
that the Court in Twombly and Iqbal said were insufficient. See Twombly, 550
U.S. at 557, 127 S. Ct. 1966 (noting that “a conclusory allegation of agreement at
some unidentified point does not supply facts adequate to show illegality”); Iqbal,
129 S. Ct. at 1950–51 (holding that Iqbal’s bare allegation that defendants
Ashcroft and Mueller agreed to adopt a discriminatory policy was not entitled to
the presumption of truth and should be ignored under Twombly). Plaintiffs also
allege that “[i]n order for the fraudulent schemes described above to be successful,
21
each Defendant and other members of the conspiracy had to agree to enact and
utilize the same devices and fraudulent tactics against the Class Plaintiffs.” D.E.
111, at ¶ 69. We are “not required to admit as true this unwarranted deduction of
fact.” See Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1268 (11th Cir. 2009)
(rejecting plaintiff’s allegation that the alleged scheme necessarily required the
cooperation of the alleged conspirators); Twombly, 550 U.S. at 566, 127 S. Ct. at
1971 (rejecting plaintiffs’ argument that as soon as one defendant gave in, the
conspiracy would not work, because there were logical reasons why defendants
would independently engage in similar conduct).
After eliminating the wholly conclusory allegations of conspiracy, we turn
to Plaintiffs’ remaining factual allegations. Plaintiffs attempt to bolster their
conspiracy allegations by describing the following “collective” or parallel actions
taken by Defendants, from which they now argue the existence of an agreement
may be inferred: the collective development and use of automated processes to
manipulate CDT codes, i.e. downcoding and bundling; the use of the same claims
procedures, including the data that dentists are required to provide in submitting
claims, the forms on which dentists must submit their data, and the coding that
dentists use to submit their data; and Defendants’ participation in trade
associations and private, jointly owned partnerships and corporations. D.E. 111,
22
at ¶¶ 70–71. Assuming for the sake of argument that parallel conduct has actually
been alleged here,5 and accepting these factual allegations as true, as we are
required to do under Iqbal, see 129 S. Ct. at 1950, we think that the Supreme
Court’s holding in Twombly forecloses any possibility that Plaintiffs’ allegations
of parallel conduct plausibly suggest a conspiracy. The Court stated in Twombly
that “when allegations of parallel conduct are set out . . . they must be placed in a
context that raises a suggestion of a preceding agreement, not merely parallel
conduct that could just as well be independent action.” 550 U.S. at 557, 127 S. Ct.
at 1966. The Court held that allegations of parallel conduct, accompanied by
nothing more than a bare assertion of a conspiracy, do not plausibly suggest a
conspiracy, stating that “without that further circumstance pointing to a meeting of
5
We are not convinced that Plaintiffs actually allege parallel conduct with regard to their
allegation that Defendants used the same downcoding and bundling methods, because there is no
indication from the complaint that Defendants used the same software to downcode and bundle
procedures in the same way over an extended period of time. See D.E. 111, at ¶ 42 (“To
accomplish this downcoding and bundling, Defendants used services and software such as those
sold and licensed by Dentistat Inc. (‘Dentistat’) and McKesson Corporation (‘McKesson’), such
as ClaimsCheck Dental, CodeReview, and AutoCoder, or comparable software, which, among
other things, are capable of modifying code protocols.”) (emphases added); D.E. 111, at ¶ 46
(“Through the use of Dentacom, Proclaim and other systems, Defendant Cigna aggressively
reduces the payment of claims by systematically downcoding, bundling and pending provider
claims for payment.”) (emphasis added).
23
the minds, an account of a defendant’s commercial efforts stays in neutral
territory.” Id.6
These conclusions are especially true where, as here, there is an “obvious
alternative explanation” for each of the collective actions alleged that suggests
lawful, independent conduct. See Twombly, 550 U.S. at 568, 127 S. Ct. at 1972(finding that industry developments provided a “natural explanation” for
defendants’ alleged conduct that helped to foreclose plaintiffs’ suggestion of
conspiracy); Iqbal, 129 S. Ct. at 1951–52 (finding that though some of the
plaintiff’s allegations were “consistent with” purposeful discrimination, the
complaint as a whole supported a plausible and legitimate motive by law
enforcement officers to protect the nation from “suspected terrorists”). As for
Plaintiffs’ allegation that Defendants downcoded and bundled some submitted
claims, insurance companies must use computers and software to efficiently
process claims, and the use of downcoding and bundling may be proper in order to
decrease physicians’ costs and potentially increase profits. See In re Managed
Care Litig., 430 F. Supp. 2d 1336, 1348 (S.D. Fla. 2006), aff’d sub nom. Shane v.
6
The Court acknowledged that certain examples of a parallel conduct might be sufficient
to imply a conspiracy, such as “parallel behavior that would probably not result from chance,
coincidence, independent responses to common stimuli, or mere interdependence unaided by an
advance understanding among the parties.” 550 U.S. at 557 n.4, 127 S. Ct. at 1966 n.4 (quoting
6 P. Areeda & H. Hovenkamp, Antitrust Law ¶ 1425, pp. 167–85 (2d ed. 2003)). The conduct
alleged here does not fall into any of these categories.
24
Humana, Inc., 228 F. App’x 927 (11th Cir. 2007) (unpublished). In fact,
Plaintiffs’ brief only decries the use of “improper” bundling, which implies that
some bundling of claims is commonly acceptable. Brief of Appellant at 1.
Additionally, the Department of Health and Human Services has taken the position
that the inverse processes of “upcoding” and “unbundling” are fraudulent billing
practices under Medicare, which supports the use of automated claims processing
systems. See Medicare at Risk: Emerging Fraud in Medicare Programs: Hearing
Before the Senate Committee on Governmental Affairs, Permanent Subcommittee
on Investigations, 105th Cong. (1997) (statement of Michael F. Mangano,
Principal Deputy Inspector General, U.S. Department of Health and Human
Services), available at http://www.hhs.gov/asl/testify/t970626b.html. The use of
automated systems that bundle and downcode may just as easily have developed
from independent action in a competitive environment as it would from an illegal
conspiracy, because each insurer would have an economic interest in decreasing
physicians’ costs and increasing profits. See In re Managed Care Litig., 430 F.
Supp. 2d at 1348. The complaint does not plausibly suggest that by using similar
methods to downcode and bundle claims, Defendants have acted in any way
inconsistent with the independent pursuit of their own economic self-interest.
Accordingly, Defendants’ parallel conduct is equally indicative of rational
25
independent action as it is concerted, illegitimate conduct and thus “stays in
neutral territory.” See Twombly, 550 U.S. at 557, 127 S. Ct. at 1966.
As for Plaintiffs’ allegation that a conspiracy may be inferred from
Defendants’ participation in trade associations and other professional groups, it
was well-settled before Twombly that participation in trade organizations provides
no indication of conspiracy. Twombly, 550 U.S. at 567 n.12, 127 S. Ct. 1971 n.12;
see also Consol. Metal Prods., Inc. v. Am. Petroleum Inst., 846 F.2d 284, 293–94
(5th Cir. 1988) (“A trade association by its nature involves collective action by
competitors. Nonetheless, a trade association is not by its nature a ‘walking
conspiracy’ . . . . [T]he establishment and monitoring of trade standards is a
legitimate and beneficial function of trade associations.”).
Plaintiffs have not plausibly alleged sufficient facts regarding Defendants
agreement with other entities or persons to engage in the ongoing criminal conduct
of an enterprise. Plaintiffs’ allegations of Defendants’ parallel conduct, absent a
plausibly-alleged “meeting of the minds,” fail to “nudge[] their claims across the
line from conceivable to plausible.” See Twombly, 550 U.S. at 557, 570, 127 S.
26
Ct. at 1966, 1974. Accordingly, we conclude that the district court did not err in
dismissing the RICO conspiracy claim in the Second Amended Complaint.7
V. CONCLUSION
The RICO allegations in Plaintiffs’ Second Amended Complaint “stop[]
short of the line between possibility and plausibility.” See Twombly, 550 U.S. at
557, 127 S. Ct. at 1966. As explained above, Plaintiffs failed to sufficiently plead
7
We recognize that many of our sister circuits have held that if a plaintiff fails to state a
claim of a primary RICO violation, then the plaintiff’s civil RICO conspiracy claim necessarily
fails. See GE Invest. Private Placement Partners II v. Parker, 247 F.3d 543, 551 n.2 (4th Cir.
2001); Efron v. Embassy Suites, P.R., Inc., 223 F.3d 12, 21 (1st Cir. 2000); Discon, Inc. v.
NYNEX Corp., 93 F.3d 1055, 1064 (2d Cir. 1996), vacated on other grounds, 525 U.S. 128, 119
S. Ct. 493 (1998); Lightning Lube, Inc. v. Witco Corp., 4 F.3d 1153, 1191 (3rd Cir. 1993);
Religious Tech. Ctr. v. Wollersheim, 971 F.2d 364, 367 n.8 (9th Cir. 1992); Danielsen v.
Burnside-Ott Aviation Training Ctr., Inc., 941 F.2d 1220, 1232 (D.C. Cir. 1991); Craighead v.
E.F. Hutton & Co., 899 F.2d 485, 495 (6th Cir. 1990); In re Edwards, 872 F.2d 347, 352 (10th
Cir. 1989). This court has not expressly stated such a rule. In Jackson v. Bellsouth Telecomm.,
372 F.3d 1250 (11th Cir. 2004), we affirmed the dismissal of a RICO conspiracy claim because
the complaint failed to allege a substantive RICO claim, but we emphasized that “the RICO
conspiracy [claim] add[ed] nothing” because it “simply conclude[d] that the defendants
‘conspired and confederated’ to commit conduct which in itself does not constitute a RICO
violation.” Id. at 1269. In an unpublished opinion, we characterized our holding in Jackson as
follows: “where a plaintiff fails to state a RICO claim and the conspiracy count does not contain
additional allegations, the conspiracy claim necessarily fails.” Rogers v. Nacchio, 241 F. App’x
602, 609 (11th Cir. 2007) (citing Jackson, 372 F.3d at 1269) (emphasis added). Unlike in
Jackson, Plaintiffs’ conspiracy count contains additional allegations, separate from the
allegations in the substantive RICO count. Accordingly, there appears to be no controlling
authority in our circuit or in the Supreme Court instructing us to adopt the reasoning of our sister
circuits and dismiss Plaintiffs’ conspiracy claim because the substantive RICO claim was
deficiently alleged. See also Beck v. Prupis, 529 U.S. 494, 506 n.10, 120 S. Ct. 1608, 1616 n.10
(2000) (expressly declining to resolve whether a plaintiff suing under section 1964(c) for a RICO
conspiracy must allege an actionable violation under section 1962(a)–(c)). Because Plaintiffs’
conspiracy count fails to state a claim under Twombly and Iqbal’s plausibility standard, we find it
unnecessary to decide in this case whether Plaintiffs’ conspiracy claim must also fail because of
the deficiencies in the substantive RICO count.
27
a pattern of racketeering activity predicated on a scheme to commit acts of mail
and wire fraud. Plaintiffs also failed to plausibly allege a conspiracy to commit
RICO violations, as they merely offered conclusory allegations of agreement
accompanied by statements of parallel behavior, which just as easily suggest
independent, lawful action. For the aforementioned reasons, we affirm the district
court order dismissing Plaintiffs’ RICO and RICO-related claims for failure to
state a claim.8
AFFIRMED.
8
The only argument Plaintiffs make with respect to the claim for aiding and abetting
RICO violations under 18 U.S.C. § 2 (Count II) is in a footnote, which states that their arguments
apply with equal force to that claim. Plaintiffs do not offer any argument with respect to their
claim for declaratory relief for RICO violations (Count IV). We conclude that the district court
properly dismissed these claims for the same reasons that it dismissed the section 1962(c) and
section 1962(d) claims. Additionally, Plaintiffs raise several other arguments on appeal with
respect to the district court’s order dismissing their complaint. For example, Plaintiffs assert that
the district court erroneously found Twombly to have created a heightened pleading standard and
wrongly compared their RICO allegations to those in the Solomon and Genord cases that the
court had earlier dismissed for failure to state a claim. Because we hold that the Second
Amended Complaint fails to state a claim for relief under the plausibility pleading standard
articulated by the Supreme Court in Twombly and Iqbal, we conclude that these contentions are
meritless.
28