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State Farm Mutusal Automobile Insurance Co. v. Jacobs

United States District Court, W.D. Washington, Tacoma

October 28, 2014

STATE FARM MUTUSAL AUTOMOBILE INSURANCE COMPANY, and STATE FARM FIRE AND CASUALTY COMPANY, Plaintiffs,
v.
ANDREW JACOBS, et al., Defendants.

ORDER GRANTING MOTION TO DISMISS [DKT. #17]

RONALD B. LEIGHTON, District Judge.

I. INTRODUCTION

THIS MATTER is before the Court on the Defendants' Motion to Dismiss [Dkt. #17]. The case involves State Farm's effort to recoup more than $800, 000 it paid to Defendants Tacoma Therapy and Tacoma Rehabilitation on behalf of its insureds (and persons injured by its insureds) for massage and physical therapy services. State Farm claims that the entities violated Washington's corporate practice of medicine doctrine and the Professional Service Corporation Act because their owners were never licensed to provide the medical services the entities were providing. The entities were founded in 2006 and 2008 by defendants Andrew and Melanie Jacobs. The Jacobs sold both entities to Defendants Thomas Lagen and Jacob Vranna in 2012 or 2013. The entities, Lagen and Vranna[1] seek dismissal of the claims against them, arguing even if their practice was improper, Washington does not provide a private right of action for an insurer to collect a refund on that basis.

II. DISCUSSION

A. Dismissal Under Rule 12(b)(6)

Dismissal under Rule 12(b)(6) may be based on either the lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). A complaint must allege facts to state a claim for relief that is plausible on its face. See Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). A claim has "facial plausibility" when the party seeking relief "pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Although the Court must accept as true a complaint's well-pled facts, conclusory allegations of law and unwarranted inferences will not defeat an otherwise proper Rule 12(b)(6) motion. Vasquez v. L.A. County, 487 F.3d 1246, 1249 (9th Cir. 2007); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). "[A] plaintiff's obligation to provide the grounds' of his entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations and footnote omitted). This requires a plaintiff to plead "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 129 S.Ct. at 1949 (citing Twombly ).

B. An Insurer Does Not Have a Private Right of Action Under the Corporate Practice of Medicine Doctrine or the PSCA

Washington's corporate practice of medicine doctrine prohibits corporations from employing medical professionals to practice their licensed professions. See Columbia Physical Therapy v. Benton Franklin Orthopedic Ass., 168 Wn.2d 421, 430 (2010). In other words, medical professionals generally cannot form or work for limited liability entities. The PSCA is a statutory exception to this prohibition. It allows medical professionals to form (and to be employed by) professional (limited liability) services corporations, if and only if all of the corporation's shareholders are themselves licensed to provide the offered medical services. See RCW 18.100.010.

For purposes of this motion, at least, it is not disputed that all owners of Tacoma Therapy and Tacoma Rehabilitation were at no time themselves licensed to provide all of the medical services the entities were providing to State Farm's insureds (and for which State Farm was paying). The entities were not within the PSCA's exception to the corporate practice of medicine doctrine, and that doctrine prohibits the entities from operating as they did.

State Farm argues that the remedy for this violation is that it is entitled to a refund of all the claims it paid to the entities for these services over the last eight years. The defendants argue that there is no express or implied private right of action for such a remedy.

As an initial matter, State Farm concedes that the PSCA does not expressly include a private right of action (for anyone, and certainly not for insurers). The issue, then, is whether the private right of action State Farm seeks to assert in this case can be implied.

There are three[2] prerequisites for the Court to determine that the PSCA includes an implied cause of action in this case. And the determination depends in part on the status of the party seeking to assert a private claim based on the statute:

(1) the plaintiff falls within the class for whose benefit the statute was enacted;
(2) the legislative intent behind the statute supports recognizing a private cause of action as a ...

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