Filed August 11, 2000
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 99-1854
JOSEPH MAIO; JO ANN MAIO; and GARY BENDER, ON
BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY
SITUATED
v.
AETNA INC.; AETNA-US HEALTHCARE, INC; AETNA-U.S.
HEALTHCARE OF ARIZONA INC.; AETNA-U.S.
HEALTHCARE OF CALIFORNIA INC.; AETNA-U.S.
HEALTHCARE INC. (COLORADO); AETNA HEALTH PLANS
OF SOUTHERN NEW ENGLAND, INC.; AETNA-U.S.
HEALTHCARE, INC. (DELAWARE); AETNA-U.S.
HEALTHCARE INC. (FLORIDA); AETNA-U.S. HEALTHCARE
OF GEORGIA INC.; AETNA-U.S. HEALTHCARE OF
ILLINOIS; AETNA-U.S. HEALTHCARE INC. (KENTUCKY);
AETNA-U.S. HEALTHCARE INC. (LOUISIANA); AETNA-U.S.
HEALTHCARE INC. (MASSACHUSETTS); AETNA-U.S.
HEALTHCARE INC. (MICHIGAN); AETNA-HEALTH PLANS
OF NEW JERSEY, INC.; AETNA-U.S. HEALTHCARE INC.
(NEW YORK); AETNA-U.S. HEALTHCARE OF THE
CAROLINAS; AETNA-U.S. HEALTHCARE INC. (OHIO);
AETNA-U.S. HEALTHCARE INC. (PENNSYLVANIA); AETNA
HEALTH PLANS OF CENTRAL AND EASTERN
PENNSYLVANIA, INC.; AETNA HEALTH PLANS OF
WESTERN PENNSYLVANIA, INC; AETNA HEALTH PLANS
OF TENNESSEE, INC.; AETNA-U.S. HEALTHCARE INC.
(TEXAS); AETNA-U.S. HEALTHCARE OF NORTH TEXAS
INC.; AETNA-U.S. HEALTHCARE INC. (VIRGINIA); AETNA-
U.S. HEALTHCARE OF WASHINGTON INC.
JOSEPH MAIO; JO ANN MAIO; GARY BENDER,
Appellants
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 99-1969)
District Judge: Honorable John P. Fullam
Argued June 19, 2000
BEFORE: GREENBERG and WEIS, Circuit Judges,
SCHWARTZ,* District Judge
(Filed: August 11, 2000)
Edith M. Kallas (argued)
David J. Bershad
Patricia M. Hynes
Charles S. Hellman
Milberg Weiss Bershad Hynes
& Lerach LLP
One Pennsylvania Plaza
49th Floor
New York, New York 10119
James J. Binns
The Mellon Bank Center
39th Floor
1735 Market Street
Philadelphia, Pennsylvania 19103
Harvey Rosenfield
The Foundation for Taxpayer and
Consumer Rights
1750 Ocean Park Boulevard
Suite 200
Santa Monica, California 90405
_________________________________________________________________
* Hon. Murray M. Schwartz, Senior Judge of the United States District
Court for the District of Delaware, sitting by designation.
2
Eugene A. Spector
Jeffrey L. Kodroff
Andrew Abramowitz
Spector & Roseman, P.C.
1818 Market Street
Suite 2500
Philadelphia, Pennsylvania 19103
Attorneys for Appellants
Alan J. Davis (argued)
Burt M. Rublin
Raymond A. Quaglia
Ballard Spahr
Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania
19103-7599
Attorneys for Appellees
OPINION OF THE COURT
GREENBERG, Circuit Judge
I. INTRODUCTION
This matter comes before this court on an appeal by
Joseph Maio, Jo Ann Maio and Gary Bender (hereinafter
"appellants") from the district court's final order entered
September 29, 1999, which granted motions to dismiss
appellants' complaint pursuant to Fed. R. Civ. P. 12(b)(1),
12(b)(6) and 9(b). In their "class action complaint,"
appellants asserted claims against Aetna, Inc., Aetna-U.S.
Healthcare, Inc., and Aetna-U.S. Healthcare, Inc.'s 24
regional subsidiary health plans (collectively "Aetna" or
"appellees") for violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO"), 18 U.S.C.S 1961 et
seq., and state law. The appellants describe this case as
challenging "Aetna's failure to disclose its restrictive and
coercive internal policies and practices, which render its
advertising, marketing and membership materials false and
3
misleading in violation of RICO." Br. at 4. Appellants allege
that "Aetna has engaged in a massive nationwide
fraudulent advertising campaign designed to induce people
to enroll in its HMO by representing that Aetna
affirmatively manages its members' health care so as to,
inter alia, raise the quality of care to a `level of health care
never available under the old fee-for-service system,' " when
in fact, Aetna designed undisclosed internal policies to
"improve defendants' profitability at the expense of quality
of care." Br. at 4-5 (footnote omitted). Appellants seek
compensatory damages and an injunction enjoining
appellees from pursuing the "policies, acts and practices"
alleged in the complaint, together with punitive damages,
treble damages, and attorney's fees under RICO.
Prior to filing an answer to the complaint, the appellees
filed sequential motions to dismiss. In its Memorandum
and Order of September 29, 1999, see Maio v. Aetna, Inc.,
No. 99-1969, 1999 WL 800315 (E.D. Pa. Sept. 29, 1999),
the district court determined that appellants' RICO claims
in counts I and II of the complaint failed because appellants
did not allege that they suffered a concrete "injury in fact"
sufficient to confer standing on them to challenge Aetna's
allegedly fraudulent activities. Accordingly, the district
court entered an order granting the appellees' motions
insofar as they pertained to appellants' RICO claims, and
thus dismissed with prejudice counts I and II of the
complaint, the RICO counts. The district court then
dismissed the state law claims without prejudice"for lack
of subject matter jurisdiction." Id. at *2.
For the reasons that follow, we will affirm the district
court's order dismissing the complaint on the ground that
appellants have not alleged an injury to business or
property cognizable under RICO.
II. FACTS and PROCEEDINGS
A. Factual Background
We decide this appeal on the facts appellants alleged in
their complaint. Appellants instituted this purported class
action on behalf of themselves and all members of a class
4
consisting "of all persons in the United States who are, or
were, enrolled in [Aetna's] Health Maintenance Organization
(the `HMO') plans (the `Plan') at any time during the period
from July 19, 1996 to the present (the `class period')."1 JA-
14. The class allegedly consists of millions of both present
and former Aetna HMO members who, as a group, "were
targeted by [Aetna] and induced into enrolling in Aetna's
HMO by virtue of defendants' standardized and uniform
misrepresentations and omissions of material facts
contained in advertising, marketing and membership
materials." Id. Appellants aver that during the class period,
Aetna engaged in a fraudulent scheme designed to induce
individuals to enroll in its HMO plan by representing "that
its primary commitment, in connection with the healthcare
services provided to its HMO members, is to maintain and
improve the quality of care given to such members and that
defendants' policies are designed to accomplish these
goals." JA-14.
Appellants also assert that Aetna represented that HMO
members would receive high quality health care from
physicians who are solely responsible for providing all
medical care and maintaining the physician-patient
relationship, when in reality Aetna's internal policies
restrict the physicians' ability to provide the high quality
health care that appellants have been promised. JA-15.
Moreover, they claim that despite Aetna's representations
that it compensated its physicians under a system that
provides them with incentives based upon the quality of
care provided, Aetna's provider contracts actually offer the
physicians financial incentives to withhold medical services
and reduce the quality of care to HMO members. Id.
The complaint alleges that Aetna made these various
representations through marketing, advertising and
membership materials distributed to each and every
_________________________________________________________________
1. For convenience, we will refer to Aetna-U.S. Healthcare, Inc.'s HMO
plan as "Aetna's HMO." See JA-21, JA-27. Aetna's HMO is an individual
practice association model HMO in which Aetna contracts with
physicians, groups of physicians, and medical centers who agree to
provide care to HMO members in addition to other, non-HMO affiliated
patients. JA-27.
5
prospective enrollee including the appellants. JA-29. The
complaint provides several examples of Aetna's
advertisements during the class period, each of which
appellants claim reaffirmed in some manner Aetna's
supposed commitment to "raising the quality of healthcare
in America." See JA-29 to JA-34. Similarly, the complaint
refers to certain membership materials, including a
brochure entitled "HMO Plan Benefits," and avers that the
brochure represented that Aetna provides financial
incentives "intended to continually improve medical care,"
see JA-35, when in reality, the financial incentives were
intended to have just the opposite effect--i.e., to restrict the
level of health care that the participants received.
The complaint further points to the "HMO Plan Member
Handbook" and the "Certificate of Coverage," and alleges
that Aetna falsely represented therein that the health care
administered under the HMO is entrusted solely to Aetna-
affiliated physicians and individual practice associations.
Appellants claim essentially that these representations
created an illusion that the physicians would make the
necessary decisions regarding patient care independently,
when in reality Aetna's policies restricted the physicians'
decisionmaking abilities concerning the level and extent of
care to be provided in particular cases. Appellants argue
specifically that the HMO Plan Member Handbook explicitly
states that (1) "Participating Physicians maintain the
physician-patient relationship with Members and are solely
responsible to Member for all Medical Services which are
rendered by Participating Physicians"; (2) "Understand that
participating doctors and other health care providers who
care for you are not employees of the HMO and that the
HMO does not control them"; and (3) HMO members have
the right to "[h]elp your doctor make decisions about your
health care." See JA-35 (alteration in original); JA-321 to
JA-322; Br. at 11.2
_________________________________________________________________
2. Appellants' brief recites other representations made in the Handbook,
claiming that they were false and misleading. Br. at 11 (noting that the
Handbook states that "when medically necessary, your primary care
physician may refer you to a specialist or facility for treatment or for
covered preventative care services," and further stating that "members
have a right to `have a doctor decide when coverage treatment should be
denied.' "); see also JA-330, JA-340. Because these statements are not
mentioned in the complaint, we need not consider them in our analysis,
although if we did our result would be the same.
6
Appellants also claim that appellees falsely represented in
other membership documents that physicians would be
awarded for providing quality care, when in reality the
physicians were rewarded under Aetna's plan based on how
well they minimized costs. Appellants first point to the
HMO Plan Member Handbook as well as the "Physician and
Hospital Directory" and contend that appellees represented
therein that in order to ensure that HMO members receive
high quality care, physicians are compensated under a
system that provides them with incentives based upon the
quality of care provided:
Primary care physicians are generally compensated in
accordance with our Quality Care Compensation
System, which rewards primary care physicians for
delivery of quality care in a cost-effective manner . This
includes payment on a per member per month basis
(capitation), as well as quality incentives to enhance
patient satisfaction, improve medical care, and
participate in continuing medical education programs.
Also a small component of overall compensation reflects
how effectively the physician manages the cost of the
hospital and specialist services and provides effective
preventative care.
JA-36 to JA-37 (alteration in original). Appellants also rely
on representations made in appellees' brochure entitled
"How We Measure Quality," in which appellees allegedly
convey that physicians are compensated "based upon
quality of care considerations." JA-36. Appellants rely on
the following statements in the brochure:
Aetna-U.S. Healthcare has been recognized as the
industry leader in using information about the quality
of care and service provided to members to help
determine how primary care physicians are paid. Our
incentives are directed to reward better quality care and
to guard against any potential to withhold care. This
innovative payment method, the Quality Care
Compensation System (QCCS) is in the process of
being extended to Aetna-U.S. Healthcare participating
physicians across the nation.
QCCS rewards primary care physicians for delivering
quality care in a cost-effective manner. This includes
7
paying primary care physicians on a per member per
month basis (capitation), as well as providing quality
incentives to satisfy patients, improve medical care and
participate in continuing medical education programs.
In particular, QCCS can positively influence care by
rewarding primary care physicians whose charts reflect
their attention to quality preventative medicine. This
includes taking a thorough medical history of the
patient, providing immunizations and cholesterol
testing, and properly recording the physician'sfindings.
Member survey results are also considered because we
value the opinions expressed by our members about
the quality of care and service they receive from their
primary care physicians. Also a small portion of the
total compensation reflects how effectively the
physician manages the cost of hospital and specialist
services and provides effective preventative care.
JA-36 to JA-37. Appellants further point out that the
brochure concludes by stating:
This brief introduction to the Quality Improvement
Program at Aetna-U.S. Healthcare demonstrates why
we believe no other managed care organization
embraces quality as intensively as we do. We are
accumulating extensive information on the care
received by our 10.8 million managed care members.
Our commitment to quality improvement enables us to
deliver health care plans that are readily distinguished
from the rest of this industry.
JA-37.
According to appellants' complaint, despite the
representations appellees made in their advertising,
marketing and membership materials, they failed to
disclose certain of their internal policies which contradict
the message conveyed to appellants that quality care was
Aetna's primary concern. JA-38. Aetna's allegedly
undisclosed internal policies include: (1) generating
agreements with medical service providers which restrict
the ability of Aetna's physicians to provide quality care; (2)
providing financial incentives to physicians which are
intended to reduce the quality of care provided to plan
8
members rather than raise the quality of care; and (3)
providing disparate treatment to HMO members who
receive benefits under a plan subject to the Employee
Retirement Income Security Act ("ERISA") versus non-
ERISA HMO members. JA-38.
The class action complaint provides the following
examples of Aetna's "systemic policies" with respect to the
provider agreements between Aetna and the participating
physicians which allegedly inhibit the physicians' abilities
to provide quality care to Aetna's HMO members:
- Aetna's policy of `removing the medical decision-
making process from the plan members' physicians
and giving it to Aetna-USHC, despite the fact that
defendants represent in the marketing and
advertising material they distribute to prospective
enrollees that physicians are solely responsible for
all medical services provided.'
- Aetna's decision to define the term `medical
necessity' `in an extremely narrow fashion that
focuses minimally on clinical medicine and focuses
largely on cost and convenience to the plan.'
- Aetna's policy which permits it `to override a
physician's decisions about what care is medically
necessary' and its failure `to provide a mechanism
for physicians to appeal a decision by Aetna that
patient care is not deemed medically necessary--
even though defendants represent in their
marketing material that physicians cannot be
penalized for filing a complaint or an appeal.'
- Aetna's policy of including `gag' clauses in provider
contracts that allegedly limit physicians' ability to
disclose information to patients.
- Aetna's policy of `refusing to negotiate with
individual physicians contract provisions that
[allegedly] implicate serious concerns regarding
patient care.'
- Aetna's decision to retain `the power to amend,
unilaterally, all terms of their contract, including
9
clinical protocols and procedures, without any
requirement that Aetna notify physicians.'
- Aetna's policy of purportedly restricting patient
access to emergency care services.
- Aetna's policy of providing an `open-ended definition
of emergency care which [allegedly] fails to
incorporate a prudent layperson standard or in any
way make clear what kind of treatment options a
patient will receive under the plan when they
reasonably seek emergency services.'
- Aetna's policy which gives the Plan co-ownership of
patient medical records which violates, according to
plaintiffs, physician-patient confidentiality.
JA-39 to JA-40. Appellants claim that Aetna "fail[ed] to
disclose the existence of these restrictive agreements with
physicians, despite the fact that [Aetna] represent[ed] in
their marketing materials that plan members have the right
to know how Aetna-USHC decides what services are
covered." JA-39.
Appellants also describe in their complaint the nature of
Aetna's purportedly undisclosed financial incentives
provided to physicians which allegedly were designed to
reduce the quality of care provided to its HMO members:
- `incentives and disincentives which seek to reward
physicians for achieving large patient/member
ratios. For example, physicians are rewarded for a
patient/member ratio which exceeds 750 patients
per provider.'
- `incentives and disincentives which seek to restrict
HMO members' hospitalization, specialist and
emergency room utilization.'
- `quality factored distributions which reward
physicians for attaining specific performance
utilization targets for acute hospitalization care,
catastrophic specialist utilization and emergency
room utilization.'
JA-40 (internal quotation marks omitted).
10
Appellants also challenge Aetna's failure to disclose its
policy of "disparately treating individuals who receive their
benefits through ERISA plans (where liability may be
limited to statutory remedies) versus those who receive
their benefits through non-ERISA plans (where liability may
be much greater)." Br. at 16; see also JA-50. The complaint
alleges that an internal Aetna videotape concerning its
disability insurance claims handling practice records Aetna
representatives' directions to its employees to"do more on
a non-ERISA plan to protect against the potential for
exposure to litigation, thereby discriminating against ERISA
beneficiaries." JA-50 to JA-51 (internal quotation marks
omitted). The complaint further avers that "[a]lthough the
training video dealt with the handling of long-term
disability claims, an Associated Press article dated October
12, 1998, . . . stated that while the topic of the video was
long-term disability claims and not health insurance, `the
company says that its policies do not differ.' " JA-53 to JA-
54. Appellants state that "[s]uch a policy also evidences
[Aetna's] intention to provide only the most minimal, not
quality healthcare services to all its HMO members." JA-54.
Count I of appellants' complaint alleges that Aetna's
conduct violated RICO sections 1962(c) and (d), and count
II states a claim predicated on RICO sections 1962(a) and
(d).3 Counts III through V assert claims arising under
_________________________________________________________________
3. 18 U.S.C. S 1962 provides in pertinent part:
(a) It shall be unlawful for any person who ha s received any
income derived, directly or indirectly, from a pattern of racketeering
activity or through collection of an unlawful debt in which such
person has participated as a principal within the meaning of section
2, title 18, United States Code, to use or invest, directly or
indirectly, any part of such income, or the proceeds of such income,
in acquisition of any interest in, or the establishment or operation
of, any enterprise which is engaged in, or the activities of which
affect, interstate or foreign commerce. A purchase of securities on
the open market for purposes of investment, and without the
intention of controlling or participating in the control of the issuer,
or of assisting another to do so, shall not be unlawful under this
subsection if the securities of the issuer held by the purchaser, the
members of his immediate family, and his or their accomplices in
any pattern or racketeering activity or the collection of an unlawful
11
Pennsylvania law (Count III--Fraud and Deceit; Count IV--
Pennsylvania Unfair Trade Practices and Consumer
Protection Law--"and Other Similar Consumer Protection
Statutes"; Count V--Unjust Enrichment).
Section IV of the complaint, which is entitled
"Appropriateness of Class Treatment," not only provides a
summary of the legal theory upon which appellants
predicate their federal and state claims, but also states
explicitly those theories upon which appellants' claims are
not based:
In addition, this action does not seek to remedy claims
of personal injury, contract, denial of benefits, medical
malpractice and/or wrongful death against defendants.
Moreover, this action seeks to remedy claims
addressing the quality of healthcare services as set
forth in Dukes v. U.S. Healthcare, Inc., 57 F.3d 350 (3d
Cir. 1995), and its progeny, and does not seek to
recover benefits due under the terms of a plan, to
enforce rights under the terms of a plan or to clarify
rights to future benefits under the plan.
JA-25.
In accordance with their stated intention to challenge
only the quality of health care services that Aetna arranged
for and provided through its participating physicians,
appellants allege that as a result of Aetna's adoption of the
systemic polices and practices outlined in the complaint,
"the healthcare provided to plaintiffs and the Class is not as
_________________________________________________________________
debt after such purchase do not amount in the aggregate to one
percent of the outstanding securities of any one class, and do not
confer, either in law or in fact, the power to elect one or more
directors of the issuer.
(c) It shall be unlawful for any person employ ed by or associated
with any enterprise engaged in, or the activities of which affect,
interstate or foreign commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs through a
pattern of racketeering activity or collection of unlawful debt.
(d) It shall be unlawful for any person to con spire to violate any
of the provisions of subsection (a), (b), or (c) of this section.
12
represented in their uniform marketing, advertising and
membership materials." According to appellants,"the
substantial difference in the quality of healthcare services
marketed by defendants, and the quality of healthcare
services actually provided to plaintiffs and the Class, cause
membership in the Plan to be worth much less than that
actually charged by defendants, and have ultimately
resulted in damages to plaintiffs and the Class." JA-54.
They also explain that "[p]laintiffs and the members of the
Class enrolled in Aetna's HMO Plans paid periodic
premiums to defendants as a result of defendants'
fraudulent practices" and therefore have "been injured in
their business and/or property by defendants' racketeering
activity in amounts to be determined at trial." JA-58.
B. Procedural History
Appellants filed their complaint in the district court on
April 19, 1999. JA-1. As we previously mentioned, the
appellees filed sequential motions to dismiss pursuant to
Fed. R. Civ. P. (hereinafter "Rule") 12(b)(1), 12(b)(6) and
9(b), arguing that appellants' complaint was subject to
dismissal for several reasons. As described by the district
court, Aetna first argued that appellants lacked standing to
sue under RICO. It argued that, while appellants claim that
because of its actions the quality of care "will suffer and/or
their HMO plans are worth less than they cost, no one
claims to have been injured by being denied necessary
care." Maio, 1999 WL 800315, at *1. In other words, as we
interpret the appellees' argument, they claimed that
appellants failed to allege facts which demonstrate that
appellants suffered a cognizable injury "to business or
property," which is a necessary element of a civil RICO
claim.
Second, Aetna claimed that any injury appellants might
have suffered as a consequence of the fraud was indirect at
best and that the complaint therefore failed to allege
sufficient factual information supporting the inference that
appellants' injuries were proximately caused by appellees'
allegedly fraudulent conduct. Third, appellees asserted that
appellants' RICO counts failed to state a claim because the
appellees' allegedly fraudulent statements about"quality of
13
care" which constituted the basis for appellants' allegations
of racketeering activity, were nothing more than"mere
puffery" and therefore were not actionable. In any event,
the appellees claimed that they did not commit any fraud
against the appellants because the policies and contract
information that they allegedly concealed from the
appellants in fact were disclosed fully to the public. Fourth,
appellees contended that appellants failed to plead a valid
RICO enterprise (for purposes of count I under section
1962(c)), and also failed to allege any injury resulting from
the investment or use of alleged racketeering income (for
purposes of count II under section 1962(a)). Finally,
appellees argued that appellants' RICO claims were
preempted by ERISA, the Federal Employee Health Benefits
Act ("FEHBA"), and the Medicare Act, and alternatively were
precluded by the application of the McCarran-Ferguson Act.
See id. Appellants responded to appellees' arguments, and
specifically requested in their opposition brief the
opportunity to amend the complaint to cure any pleading
deficiencies that the district court might find.
As previously mentioned, the district court dismissed
appellants' RICO claims (pleaded in counts I and II) on the
merits and declined to exercise supplemental jurisdiction
over their state law claims (pleaded in counts III-V).4 The
primary basis for the district court's dismissal of the RICO
claims was what it perceived to be appellants' lack of a
concrete "injury-in-fact" sufficient to confer standing upon
them.5 After citing the constitutional standing requirements
_________________________________________________________________
4. The order actually states that the state law claims were dismissed
"FOR LACK OF SUBJECT MATTER JURISDICTION," see Appellants' br.,
app. at 6, but the district court's opinion clarifies that it intended to
decline, in its discretion, to exercise supplemental jurisdiction over the
remaining non-federal claims as provided in 28 U.S.C. S 1367(c)(3).
5. We note parenthetically that neither the district court nor the parties
addressed the fact that the complaint actually pleads violations of three
different subsections of 18 U.S.C. S 1962. See note 3, supra. As
previously mentioned, count I states that the appellees' conduct violated
sections 1962(c) and (d), and count II alleges that their conduct violated
sections 1962(a) and (d). Obviously, given that the district court
dismissed the RICO claims primarily because it found that appellants
failed to allege any RICO injury to property under section 1964(c), it was
14
the Supreme Court articulated in Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136 (1992),
the district court reasoned that the allegations in
appellants' complaint belied their assertion that they
suffered any concrete economic injury stemming from
appellees' allegedly fraudulent conduct:
Plaintiffs claim to have been injured in that they were
fraudulently induced to enroll in the HMOs as a result
of Aetna's representation that it is primarily concerned
with quality of care. Because defendants are allegedly
more interested in profits and cost containment,
plaintiffs contend that they have paid more for their
HMO plans than those plans are worth. As noted
above, however, plaintiffs disclaim any injury due to
the denial of benefits, reduction of benefits, inferior
care, malpractice, negligence or breach of contract--in
short, plaintiffs have disclaimed any injury that has
the potential to decrease the value of defendants'
plans. The HMOs simply cannot be `worth less' unless
something plaintiffs were promised was denied them. A
vague allegation that `quality of care' may suffer in the
future is too hypothetical an injury to confer standing
upon plaintiffs, and in addition, would require this
court to assume that in every case, individual
physicians and [individual practice associations] will be
moved to put their own economic interests ahead of
their patients' welfare. Even if this were the inevitable
result, defendants would not be the proximate cause of
the providers' ethical lapses. See Weiss v. CIGNA
Healthcare, Inc., 972 F. Supp. 748, 752 (S.D.N.Y.
1996).
Maio, 1999 WL 800315, at *2.
While the court noted that it did not have to address the
remainder of Aetna's arguments in support of dismissal, it
_________________________________________________________________
unnecessary for the court to address the two counts separately.
Inasmuch as we also have determined that appellants' RICO claims are
deficient because they fail to allege facts which, if established, would
prove the damages element under RICO, our analysis treats the separate
federal claims as one.
15
nevertheless held in the alternative that appellants'
complaint failed to plead a valid RICO enterprise, and also
that it was "highly doubtful that advertising one's
commitment to `quality of care' can serve as the predicate
for a fraud claim." Id. The court concluded its discussion of
appellants' RICO claim by observing that "plaintiffs'
expression of dissatisfaction with defendants' plans--indeed
with HMOs in general--is more appropriately directed to
the legislatures and regulatory bodies of the several states."
Id. Ultimately, the court entered an order dismissing
appellants' RICO claims with prejudice, without specifically
addressing their request for leave to amend the complaint.6
Appellants filed a timely notice of appeal on October 26,
1999.
III. JURISDICTION and STANDARD OF REVIEW
The district court exercised jurisdiction over appellants'
RICO claims pursuant to 28 U.S.C. S 1331, and over the
supplemental state law claims under 28 U.S.C. S 1367. We
have appellate jurisdiction under 28 U.S.C. S 1291 to review
the district court's final order of September 29, 1999.
In reviewing a district court's dismissal of a complaint
pursuant to Rule 12(b)(6) for failure to state a claim upon
which relief may be granted, our review is plenary and we
apply the same test as the district court.7 "A motion to
(Text continued on page 18)
_________________________________________________________________
6. The district court also addressed and denied appellees' motion for
sanctions pursuant to Fed. R. Civ. P. 11. This aspect of the district
court's order is not at issue on this appeal. Similarly, appellants do not
challenge specifically the district court's dismissal of their state law
claims without prejudice pursuant 28 U.S.C. S 1367(c)(3). Rather, their
argument apparently is that in the event that we reverse the district
court's dismissal of their RICO claims and remand for further
proceedings, we should order that the district court reinstate their state
law claims on remand. Given the result we reach on the federal claims,
the district court acted well within its discretion in dismissing
appellants' state law claims pursuant to 28 U.S.C.S 1367(c)(3).
Accordingly, we will not address the issue in any further detail.
7. Preliminarily, we point out that we have not overlooked the fact that
appellees moved to dismiss on standing grounds pursuant to Rule
12(b)(1), claiming that the nature of appellants' injury allegations
16
demonstrated that they suffered no cognizable "injury in fact" under
section 1964(c) of RICO, and therefore that the district court lacked
subject matter jurisdiction over appellants' federal claims pursuant to
Article III of the United States Constitution. See Aetna's Br. in Supp. of
Mot. to Dismiss at 12 (no. 3 on district court docket). Given that the
district court's order did not state whether it was dismissing the RICO
claims under Rule 12(b)(1) or Rule 12(b)(6), the legal basis for the court's
ruling is unclear. The court's ambiguity on this point, in turn, raises the
question of whether the order should have been denominated a dismissal
under Rule 12(b)(6) or Rule 12(b)(1), given that the basis for the court's
ruling was a perceived lack of RICO injury "to business or property"
sufficient to confer "standing" to sue under section 1964(c). Generally
speaking, motions to dismiss on the grounds of a failure to allege an
"injury in fact" implicate constitutional standing principles and thus are
predicated on Rule 12(b)(1) rather than Rule 12(b)(6). See, e.g., Society
Hill Towers Owners' Ass'n v. Rendell, 210 F.3d 168, 175 (3d Cir. 2000)
(defendants challenged plaintiffs' standing pursuant to motion to dismiss
under Rule 12(b)(1)). And in view of the district court's statement that
appellants' allegations failed to demonstrate an"injury in fact," it
appears as if the court's dismissal was pursuant to Rule 12(b)(1) for lack
of subject matter jurisdiction rather than under 12(b)(6) for failure to
state a claim.
While we have designated section 1964(c) as the"standing" provision
of RICO, see Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d
494, 520-21 (3d Cir. 1998), we point out that our method of analysis in
prior cases has been to consider issues of RICO and antitrust standing
in the context of reviewing motions to dismiss pursuant to Rule 12(b)(6),
despite the fact that the "injury to business or property" and proximate
causation requirements are considered aspects of the plaintiff 's
"standing" to sue under section 1964(c) of RICO and section 4 of the
Clayton Act. See, e.g. Steamfitters Local Union No. 420 Welfare Fund, 171
F.3d 912, 919, 921 (3d Cir. 1999) (stating that it is appropriate to
consider proximate cause requirement in section 1964(c) under the
rubric of the standing doctrine and addressing the proximate causation
issue, a separate requirement in section 1964(c), in the context of
reviewing district court's dismissal pursuant to Fed. R. Civ. P. 12(b)(6)),
cert. denied, ___ U.S. ___, 120 S.Ct. 844 (2000); see also In re: Warfarin
Sodium Antitrust Litig., 214 F.3d 395, 397-99 (3d Cir. 2000) (addressing
antitrust standing concepts in context of reviewing motion to dismiss
pursuant to Rule 12(b)(6)); City of Pittsburgh v. West Penn Power Co.,
147 F.3d 256, 264 (3d Cir. 1998) (same); compare DeMauro v. DeMauro,
115 F.3d 94, 96 (1st Cir. 1997) (reviewing standing issue under 1964(c)
17
dismiss pursuant to Rule 12(b)(6) may be granted only if,
accepting all well-pleaded allegations in the complaint as
true, and viewing them in the light most favorable to
plaintiff, plaintiff is not entitled to relief." In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997)
(citing Bartholomew v. Fischl, 782 F.2d 1148, 1152 (3d Cir.
1986)). " `The issue is not whether a plaintiff will ultimately
_________________________________________________________________
based on allegations in the pleadings; court noted in passing that
"[t]here is plainly a case or controversy under Article III; but the
statutory precondition of injury to business or property must be met.");
Oscar v. University Students Co-Operative Ass'n, 965 F.2d 783, 784-87
(9th Cir. 1992) (en banc) (addressing RICO injury requirement set forth
in section 1964(c) in context of reviewing district court's dismissal
pursuant to Rule 12(b)(6); cf. Associated General Contractors of Cal., Inc.
v. California State Council of Carpenters, 459 U.S. 519, 529, 103 S.Ct.
897, 903-04 (1983) (addressing proximate causation requirement in
analogous provision found in section 4 of the Clayton Act; proximate
causation is but one aspect of "antitrust standing" and the Court
addressed plaintiff 's standing to sue in context of reviewing motion to
dismiss pursuant to Rule 12(b)(6)). But see Moore v. PaineWebber, Inc.,
189 F.3d 165, 169 n.3 (2d Cir. 1999) ("Because loss causation is an
element of standing to sue under the RICO statute, the appropriate
ground for dismissal for failure to plead loss causation would seem to be
the lack of subject matter jurisdiction rather than the plaintiffs' failure
to state a claim.").
While we appreciate the distinction between a dismissal for lack of
subject matter jurisdiction under Rule 12(b)(1) and a dismissal for failure
to state a claim under Rule 12(b)(6), we need not resolve which is the
correct approach in the context of this case, as the appellants interpret
the dismissal as grounded on Rule 12(b)(6), see br. at 16-17, and
appellees have not challenged appellants' characterization in that regard.
Inasmuch as the appellants treat the dismissal as one pursuant to Rule
12(b)(6), there is no prejudice to appellants in our reviewing the district
court's dismissal as if it were grounded on Rule 12(b)(6), and we will
treat it as such. See Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406,
1409 (3d Cir. 1991) (noting that a plaintiff may be prejudiced if what is,
in essence, a Rule 12(b)(6) challenge to the complaint is treated as a
Rule 12(b)(1) motion, but that there was no prejudice in treating district
court's Rule 12(b)(1) dismissal as one predicated on Rule 12(b)(6),
especially where plaintiffs treated it as such); see also Children's
Seashore House v. Waldman, 197 F.3d 654, 657 n.1 (3d Cir. 1999), cert.
denied, ___ U.S. ___, 120 S.Ct. 2742 (2000).
18
prevail but whether the claimant is entitled to offer
evidence to support the claims.' " Id. (quoting Scheuer v.
Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686 (1974)).
Also we exercise plenary review over the district court's
legal determination that appellants lacked standing to
pursue a civil action against Aetna under section 1964(c) of
RICO. See Stehny v. Perry, 101 F.3d 925, 929 (3d Cir.
1996) (stating that standard of review for dismissal on
standing grounds is plenary).
IV. DISCUSSION
While appellees argue that we may affirm the district
court's order dismissing the class action complaint on a
variety of grounds, we need address only one issue--that is,
whether appellants have alleged a valid RICO injury to
business or property sufficient to afford them standing
under RICO to challenge Aetna's purportedly fraudulent
scheme. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479,
496, 105 S.Ct. 3275, 3285 (1985) (noting that a plaintiff
"only has standing [under RICO] if, and can only recover to
the extent that, he has been injured in his business or
property by the conduct constituting the violation.");
DeMauro v. DeMauro, 115 F.3d 94, 96 (1st Cir. 1997)
(noting that threshold question of whether plaintiff made
out a claim of "injury" to her "business or property" has
been described as "a standing issue"); see also Brokerage
Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 520-
21 (3d Cir. 1998) (stating that section 1964(c) sets forth the
"standing requirement" applicable to suits brought under
RICO). We reach this conclusion because, while we do not
agree entirely with the district court's analysis on this
point, we believe that the court's ultimate determination
was correct in light of the facts pleaded in the complaint,
the legal theory on which appellants' claim of financial loss
is predicated, and the reasoning of the Supreme Court's
recent decision in Pegram v. Herdrich, ___ U.S. ___, 120
S.Ct. 2143 (2000).
Apart from the Article III constitutional and prudential
standing requirements which we have addressed repeatedly
in various contexts, see, e.g., The Pitt News v. Fisher, 215
F.3d 354, 360-62 (3d Cir. 2000) (citing Lujan , 504 U.S. at
19
560, 112 S.Ct. at 2136), Society Hill Towers Owners' Ass'n
v. Rendell, 210 F.3d 168, 175-78 (3d Cir. 2000) (same),
plaintiffs seeking recovery under RICO must satisfy
additional standing criterion set forth in section 1964(c) of
the statute. See DeMauro, 115 F.3d at 96 ("There is plainly
a case or controversy under Article III; but the statutory
precondition of injury to business or property must also be
met."). In the RICO setting, standing is conferred upon "any
person injured in his business or property by reason of a
violation of section 1962 of this chapter. . . ." 18 U.S.C.
S 1964(c).8 Extrapolating from this language, we read
section 1964(c) as requiring a RICO plaintiff to make two
related but analytically distinct threshold showings relevant
in this appeal: (1) that the plaintiff suffered an injury to
business or property; and (2) that the plaintiff 's injury was
proximately caused by the defendant's violation of 18
U.S.C. S 1962.9 See First Nationwide Bank v. Gelt Funding
Corp., 27 F.3d 763, 767 (2d Cir. 1994); see Brokerage
Concepts, 140 F.3d at 520-21 (addressing section 1964(c)'s
proximate cause requirement in the context of standing
analysis).
_________________________________________________________________
8. Section 1964(c) provides in its entirety:
(c) Any person injured in his business or property by reason of a
violation of section 1962 of this chapter may sue therefor in any
appropriate United States district court and shall recover threefold
the damages he sustains and the cost of the suit, including a
reasonable attorney's fee, except that no person may rely upon any
conduct that would have been actionable as fraud in the purchase
or sale of securities to establish a violation of section 1962. The
exception contained in the preceding sentence does not apply to an
action against any person that is criminally convicted in connection
with the fraud, in which case the statute of limitations shall start to
run on the date on which the conviction becomesfinal.
9. Obviously section 1964(c) also requires a plaintiff to establish a
violation of section 1962. See Gelt Funding Corp., 27 F.3d at 767. As
previously mentioned, appellants' RICO claims are predicated on alleged
violations of sections 1962(a), (c), and (d). Inasmuch as this element of
section 1964(c) is not germane to the issues presented in this appeal, we
will not discuss it. We further point out in passing that appellants' RICO
claims were based on appellees' alleged predicate acts which they
claimed violated 18 U.S.C. SS 1341, 1343, and 2314.
20
The Supreme Court has stated that "the plaintiff only has
standing if, and can only recover to the extent that, he has
been injured in his business or property by the conduct
constituting the violation [of RICO]." Sedima, S.P.R.L., 473
U.S. at 496, 105 S.Ct. at 3285. "As the Seventh Circuit has
stated, `[a] defendant who violates section 1962 is not liable
for treble damages to everyone he might have injured by
other conduct, nor is the defendant liable to those who
have not been injured.' " Id. at 496-97, 105 S.Ct. at 3285
(quoting Haroco, Inc. v. American Nat'l Bank & Trust Co.,
747 F.2d 384, 398 (7th Cir. 1984), aff 'd, 473 U.S. 606, 105
S.Ct. 3291 (1985), which rejected a "racketeering injury"
requirement under section 1964(c) of RICO). While the
Supreme Court has stated generally that "RICO is to be
read broadly," see id. at 497, 105 S.Ct. at 3285, the Court
of Appeals for the Ninth Circuit has observed that section
1964(c)'s limitation of RICO standing to persons"injured in
[their] business or property" has a "restrictive significance,
Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326,
2331 . . . (1979), which helps to assure that RICO is not
expanded to provide a federal cause of action and treble
damages to every tort plaintiff." Steele v. Hospital Corp. of
Am., 36 F.3d 69, 70 (9th Cir. 1994) (internal quotation
marks omitted). Thus, "a showing of injury requires proof of
a concrete financial loss and not mere injury to a valuable
intangible property interest." Id. (internal quotation marks
omitted).
As appellants recognize, see br. at 22-23, the injury to
business or property element of section 1964(c) can be
satisfied by allegations and proof of actual monetary loss,
i.e., an out-of-pocket loss. See Steele, 36 F.3d at 70 (stating
that plaintiffs have not suffered a financial loss under RICO
if they have paid none of the allegedly excessive charges out
of their own pockets); Oscar v. University Students Co-
Operative Ass'n, 965 F.2d 783, 785 (9th Cir. 1992) (en
banc) (injuries to property are not actionable under RICO
unless they result in tangible financial loss to plaintiff);
Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir.
1990) (holding that plaintiffs suffered no damages under
RICO because it was undisputed that they did not incur
any out-of-pocket expenses as a result of defendants'
conduct); see also Dornberger v. Metropolitan Life Ins. Co.,
21
961 F. Supp. 506, 521 (S.D.N.Y. 1997) (stating that section
1964(c) "requires a showing of some actual, out-of-pocket
financial loss"); cf. Reiter, 442 U.S. at 340, 99 S.Ct. at
2331-32 (interpreting "injury to business or property"
element of Section 4 of the Clayton Act, 15 U.S.C.S 15, and
stating that consumers who have been "deprived of only
money, albeit a modest amount," have sustained a
"property" injury); Rosario v. Livaditis , 963 F.2d 1013, 1021
(7th Cir. 1992) (where class of beauty school students sued
beauty schools and the owner under RICO for defendants'
alleged fraud in inducing plaintiffs to enroll in beauty
school which provided poor quality instruction,
substandard equipment and facilities, court stated that
plaintiffs' RICO injury was manifested by their
governmental student loans for which they remained
obligated to repay). Throughout this opinion, we will refer to
this showing as the "damage element" or the"financial loss"
requirement of appellants' RICO cause of action. See Oscar,
965 F.2d at 785 n.1 (stating that "actual injury" means
"financial loss"); Berg, 915 F.2d at 464 (noting that
"[a]bsent damages, a RICO claim cannot be sustained").
Stated in its most general form, appellants' argument
with respect to the damage element of their RICO claims is
that they have standing under RICO because they paid too
much in their premium dollars for the health insurance
they received from Aetna.10 While we will describe the
_________________________________________________________________
10. At oral argument, appellants' counsel confirmed that appellants are
claiming that their economic injury is that they paid too much for the
health insurance they received:
THE COURT: [T]he question is this . . . what would [be] the damages
that you would propose to show here[.] [W]ould you say that
[appellants] paid too much for what they got?
[APPELLANTS' COUNSEL]: Yes. We are saying that they paid too
much for what they got.
THE COURT: And then you would have a jury then, I gather, say
that the premium, instead of being, and I'm only taking a number,
$150 per month for each person enrolled, and I know there are
different levels and all that, should be $130, something like that.
[APPELLANTS' COUNSEL]: Yes.
Tr. of Oral Arg. at 9-10; see also Tr. of Oral Arg. at 21 ("[T]hat is our
loss. They paid too much, which states a RICO claim, an injury to
property.").
22
specific contours of appellants' "overpayment" argument in
greater detail in our discussion that follows, in a nutshell,
they claim that their financial loss is demonstrated by
reference to a rather straightforward damages concept,
which, they claim, applies squarely to the facts of this case.
In the interest of clarity, we will refer to appellants'
argument in this regard as their "RICO injury theory."
Specifically, they claim that each member of the nationwide
class paid too much in premiums for an "inferior" health
care product, i.e., the inferior health insurance they
received from Aetna through its HMO plan.11
The question presented in this appeal therefore is
whether the facts as pleaded in the complaint are sufficient
to support appellants' assertion that they have suffered a
_________________________________________________________________
11. Appellants utilize the phrase "inferior" throughout their brief to
describe the health insurance they received from Aetna, see, e.g., br. at
18, 26, 28, but at oral argument, they characterized the insurance
simply as "different" from that which was represented to them. See Tr.
of Oral Arg. at 19 ("They didn't get the product that was represented.").
While we are not certain whether the different description was
intentional, we point out that if the health insurance simply was
different than that which was promised to appellants, there would be no
factual basis for an argument that they overpaid, inasmuch as a
"different" but equally good health insurance package would have an
equivalent economic value. According to appellants, their loss stems
from the fact that they paid too much in premiums for health insurance
of lesser value. See Tr. of Oral Arg. at 31 ("And the fraud is that this is
not what [Aetna] give[s]. Instead, [Aetna] give[s] you a policy, an HMO
product which is of a lesser value, because its systems--its systemic
practices, in fact, give you less. Its totally inconsistent with their
representations."). Obviously, then, Aetna's health insurance could not
be characterized as "worth less" in monetary value unless it was inferior
in some respect to that for which they contracted.
Accordingly, we must analyze appellants' RICO injury theory as
premised on the notion that Aetna's health insurance"product" is
inferior to that which it promised to deliver. It is inferior, according to
appellants, because of the existence of the policies and practices outlined
in the complaint. See id.; see also id. at 3-4 ("The fact of injury is
demonstrated by the vast disparity between the economic value of the
premium HMO product that Aetna represented" and that which
appellants received, as evidenced by their "allegations which support
undisclosed systemic practices which directly contrast those promises").
23
present injury to property, which, according to them, takes
the form of a financial loss stemming from their
overpayment for their membership in Aetna's HMO plan. To
resolve this issue, we must examine the allegations in the
complaint and any reasonable inferences that may be
drawn from those allegations, and consider their legal
significance in view of appellants' injury theory proffered in
support of the damage element of their RICO claim. 12
As previously mentioned, the district court dismissed
appellants' RICO claims because it determined that their
complaint failed to plead sufficient facts to support their
assertion that they paid too much for the health insurance
they received through Aetna's HMO plan. The court pointed
_________________________________________________________________
12. Preliminarily, we note that while this case involves a motion to
dismiss under Rule 12(b)(6), the Supreme Court recently confirmed that
we may use appellants' brief "to clarify allegations in the complaint
whose meaning is unclear." See Pegram, ___ U.S. ___, 120 S.Ct. at 2155
n.10 (citing, inter alia, Southern Cross Overseas Agencies, Inc. v. Wah
Kwong Shipping Group Ltd., 181 F.3d 410, 428 n.8 (3d Cir. 1999)). It
seems equally clear that we may consider statements made by counsel
at oral argument for that same purpose. See Alicke v. MCI
Communications Corp., 111 F.3d 909, 911 (D.C. Cir. 1997) ("At oral
argument counsel for Alicke clarified that, notwithstanding the reference
to advertising in the complaint, her allegations are directed only to the
representations contained in MCI's bills.") (cited in Pegram, ___ U.S. ___,
120 S.Ct. at 2155 n.10).
Moreover, while our standard of review requires us to accept as true
all factual allegations in the complaint, "we need not accept as true
`unsupported conclusions and unwarranted inferences.' " West Penn
Power Co., 147 F.3d at 263 n.13 (quoting Schuylkill Energy Resources,
Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 417 (3d Cir.
1997)). "[C]ourts have an obligation in matters before them to view the
complaint as a whole and to base rulings not upon the presence of mere
words but, rather, upon the presence of a factual situation which is or
is not justiciable. We do draw on the allegations of the complaint, but in
a realistic, rather than a slavish, manner." Id. at 263. Also, inasmuch as
appellants' RICO claims were based upon alleged misrepresentations set
forth in appellees' marketing, advertising and membership materials
disseminated to prospective HMO plan enrollees, and provisions in
Aetna's provider agreements, we may examine and consider those
materials in resolving this appeal. See In re Burlington Coat Factory Sec.
Litig., 114 F.3d at 1426.
24
out specifically that appellants' complaint did not allege
that they suffered personal injuries, were denied necessary
benefits, or received inferior care. It further relied on that
portion of the complaint which stated that "this action does
not seek to remedy claims of personal injury, contract,
denial of benefits, medical malpractice and/or wrongful
death against defendants." JA-25. The court believed that
inasmuch as the complaint essentially admitted that
appellants suffered no adverse medical consequences which
have the potential to decrease the value of their health
insurance and to cause them to have paid too much in
premium dollars, appellants' health insurance logically
could not be "worth less" than what they paid for it.
On appeal, appellees continue to press the argument that
appellants cannot demonstrate a RICO injury to property in
the context of this case absent specific allegations that they
have suffered medical injuries, a denial of necessary
benefits, reduction of benefits, or inferior care from
participating physicians as a result of the allegedly
improper policies and practices challenged in the
complaint. They state that "plaintiffs do not claim, and in
fact, have expressly disclaimed, any injury due to the denial
of benefits, reduction of benefits, inferior care, malpractice,
negligence and breach of contract." Br. at 14. Appellees
characterize appellants' allegations of injury in the following
manner: "Essentially, plaintiffs contend that the mere
possibility that a physician might be influenced by
defendants' alleged `incentives' to withhold necessary
medical care from, or provide inadequate treatment to,
plaintiffs if plaintiffs were to develop a covered medical
condition that required treatment in the form of a covered
medical service is sufficient, in and of itself, to cause a
concrete and measurable diminution in the value of
plaintiffs' HMO memberships from inception." Id. They
claim that this theory of injury is fundamentallyflawed--
"as a matter of law and of common sense"--because the
value of appellants' HMO memberships cannot be
diminished unless and until appellees' alleged undisclosed
policies actually cause a denial of medical care or some
other benefit to which appellants are entitled. Id.
According to appellants, despite the fact that the
complaint explains their claims as challenging the"quality
25
of health care services" Aetna provided to its HMO
members, JA-25, they need not allege any specific
instances in which appellants were denied medically
necessary care, received inferior care, delayed treatment or
suffered medical injuries as a consequence of Aetna's
implementation of the policies and practices outlined in the
complaint in order to demonstrate that each member of the
nationwide class suffered a concrete financial injury at the
point at which they enrolled in Aetna's HMO plan. As we
previously mentioned, we understand appellants' RICO
injury theory as premised on a damages concept which they
claim supports their bare allegation that they suffered an
injury to property sufficient to confer standing under RICO.
In particular, appellants rely on the legal principle that a
consumer suffers tangible economic injury where the
circumstances demonstrate that the consumer paid too
much for an "inferior" product. See br. at 27 ("Where, as
here, plaintiffs have alleged that they have been
economically injured by defendants' racketeering activity,
because they have paid too much for the product
purchased, they have standing under RICO."). Appellants
apply this principle to the facts in this case by arguing that
the very existence of the policies and practices outlined in
the complaint demonstrates that appellants have been
damaged, i.e., suffered a concrete financial loss, in the
sense that the health insurance they received from Aetna is
"inferior" to, and less valuable than, the insurance that
Aetna promised to provide to its prospective enrollees.
Appellants thus posit that because the policies and
practices outlined in the complaint render their health
insurance "inferior" in comparison to that which Aetna
promised to them through its marketing, advertising and
membership materials, they have suffered present economic
harm in the form of overpayment for an "inferior health
care product." Br. at 27-28.
Put differently, according to appellants' theory, the
difference in value between the health insurance promised
and the health insurance actually received, and
consequently their RICO injury to property, is demonstrated
by reference to the intrinsic value of health insurance with
policies geared towards providing quality health care
26
services, as compared to inferior health insurance with
policies driven primarily by fiscal and administrative
concerns. While not stated explicitly, the existence of
appellants' financial loss under this theory necessarily is
predicated on the assumption that Aetna's policies, in and
of themselves, are of such a nature so as to have a direct
negative impact on the economic value of appellants' health
insurance, causing them to have overpaid for what they
actually received. See JA-54 ("The healthcare provided to
plaintiffs and the Class is not as represented by defendants
. . . . As such, the substantial differences in the quality of
healthcare services marketed by defendants, and the
quality of healthcare services actually provided to plaintiffs
and the Class, cause membership in the Plan to be worth
much less than that actually charged by defendants[in
terms of premium payments]."); see also br. at 23 ("As a
result of Aetna's undisclosed systemic policies and
fraudulent marketing scheme described above, Aetna's
HMO members have received a health care product the
intrinsic worth of which is not commensurate with the
assurances made and the price charged by defendants.");
Tr. of Oral Arg. at 31 (noting that the HMO product is of
lesser value because Aetna's practices "give you less").
According to appellants, their financial loss occasioned as
a result of their purchase of an "inferior health care
product" is their present RICO injury which is not
dependent upon individualized proof concerning the level or
adequacy of the care that each appellant received under
Aetna's HMO plan. While they point out that their
complaint states in general terms that the appellees'
conduct demonstrates that "benefits were reduced," they
claim nevertheless that in any event, their position is that
"what the doctor does or does not do is irrelevant."13 Tr. of
Oral Arg. at 14.
(Text continued on page 29)
_________________________________________________________________
13. Appellants assert in their brief that the district court erred in not
recognizing that their complaint actually stated several times that
appellees' policies have compromised the quality of benefits that
appellants have received under Aetna's HMO plan. See br. at 29 n.11
("Contrary to the district court's remark, . . . the Complaint is replete
with allegations that defendants' undisclosed systemic policies and
practices actually `reduced the quality' of benefits received."). But
27
according to appellants, the district court's purported error in that
regard was harmless, inasmuch as they explain that their allegations to
that effect are "not essential to the fraud claim asserted here." Id.
At oral argument, counsel for appellants further clarified that,
notwithstanding the general references in the complaint to the reduced
quality of care that Aetna's HMO members have received as a result of
Aetna's policies and practices, it is their unequivocal position that those
allegations are not essential to their RICO claim, given the type of
economic harm they claim:
THE COURT: Is there any allegation in the complaint that anyone
received inferior care, anything other than high quality care? Is
there any allegation in the Complaint that the physician made
medical decisions he or she would not have made but for Aetna's
policies.
[APPELLANTS' COUNSEL]: No. There is no such allegation. There is
an allegation that benefits were reduced. But I do not believe or we
do not--our position is that what the doctor does or doesn't do is
irrelevant. . .
THE COURT: Doesn't that have something to do with quality?
[APPELLANTS' COUNSEL]: It doesn't in terms of what Aetna has
represented. And, if I may, the District Court I think had a
misunderstanding of the way the HMOs operate. And this Court's
decision in the Bauman case illustrates this point. In Bauman, this
Court noted that HMOs play different roles. A role as a plan
administrator, which is what I believe the District Court was
focusing on, under which it makes benefit determinations and its
conduct is subject to ERISA. But a separate role, the role that's at
issue here, as a provider of medical services under which it arranges
and provides for medical treatment.
Aetna represented that it was going to increase access to this
quality of care. And it is this conduct that the Bauman court, this
Court, recognized is subject to the prevailing standard of care.
Tr. of Oral Arg. at 13-15. From this colloquy, we understand appellants
as disclaiming reliance on their ambiguous assertions in the complaint
that appellees' policies actually have reduced the quality of benefits that
appellants and members of the purported class received under Aetna's
plan. Of course, as we previously mentioned, see supra note 12, we will
evaluate the sufficiency of the complaint's allegations and the legal
theories articulated in support thereof in accordance with appellants'
28
For the reasons that follow, we reject appellants' theory
that their complaint states valid RICO claims based on the
financial losses they purportedly sustained by enrolling in
Aetna's "inferior" HMO plan in the absence of allegations to
the effect that each appellant suffered negative medical
consequences resulting from Aetna's enactment of the
policies and practices at issue. Stated another way, in the
context of this case, we hold that appellants cannot
establish that they suffered a tangible economic harm
compensable under RICO unless they allege that health
care they received under Aetna's plan actually was
compromised or diminished as a result of Aetna's
management decisions challenged in the complaint. It
seems clear to us that unless appellants claim that Aetna
failed to provide sufficient health insurance coverage to the
members of their HMO plan in the sense that such
individuals were denied medically necessary benefits,
received inadequate, inferior or delayed medical treatment,
or even worse, suffered personal injuries as a result of
Aetna's systemic policies and practices, there is no factual
basis for appellants' conclusory allegation that they have
been injured in their "property" because the health
insurance they actually received was inferior and therefore
"worth less" than what they paid for it. Of course, such
losses would have to be alleged and proven on an individual
basis. Inasmuch as we hold that appellants have not
alleged facts sufficient to establish the fact of damage, i.e.,
appellants' injury to property stemming from their purchase
of an "inferior" product, they have no cause of action under
RICO.
A.
As previously mentioned, at the heart of this appeal is
appellants' contention that the injury element of their RICO
_________________________________________________________________
clarifications. See Pegram, ___ U.S. ___, 120 S.Ct. at 2155 n.10 (noting
that courts may use parties' briefs to clarify allegations in complaint
whose meaning is unclear); see also Alicke, 111 F.3d at 911 (utilizing
counsel's statements at oral argument to clarify allegations in complaint
and nature of plaintiff 's claim).
29
claims is satisfied in this case by virtue of the difference
between the "health care product" Aetna represented it
would provide and that which it actually delivered, and the
monetary loss that followed as a consequence thereof.
Based upon their basic description of their purported
economic harm, we have pinpointed the precise "injury to
property" that appellants claim to have suffered in this
case. Importantly, while not explicitly articulated as such,
we believe that the property injury claimed in this case is
comprised of two interrelated economic harmsflowing from
appellants' purchase of an allegedly inferior health care
product. First, appellants maintain that they have been
injured in their property in the sense that their tangible
property, i.e., Aetna's "health care product," has a
diminished economic value because of Aetna's managerial
policies. Proceeding from the premise that the value of their
health care product is less than they believed it to be as a
result of Aetna's policies, a second aspect of this theory of
RICO injury is that as a consequence of the diminution in
value caused by Aetna's conduct, appellants are paying
monthly premiums that are too high given what they
actually are receiving, i.e., an "inferior health care product."
See br. at 23 (noting that Aetna's members received a
health care product whose "intrinsic worth" is not
"commensurate with the assurances made and price
charged.").
Based on our interpretation of the economic harm
alleged, there is a fundamental problem with appellants'
injury theory which is fatal to their RICO claims. According
to appellants, the fact of injury is demonstrated by the
decrease in the economic value of their property, i.e., their
health insurance, which occurred as a result of Aetna's
implementation of its managerial policies and practices, but
the damages concept of a "diminution in property value"
does not have a proper application to this case. While
appellants describe Aetna's health insurance as an"HMO
product," and claim "injury" to this piece of property by
virtue of Aetna's restrictive and coercive internal policies
and practices which allegedly reduce its "intrinsic" value,
this characterization ignores the nature of the property
interest at issue--that which is conveyed through
membership in Aetna's HMO.
30
Notwithstanding appellants' description of the property
interests they acquired through their enrollment in Aetna's
HMO plan, Aetna's HMO is not a tangible property interest,
like a plot of land or a diamond necklace, as appellants'
argument necessarily implies. See br. at 30-31 (analogizing
appellants' claimed injury in this case to plaintiffs' injury
asserted in Thompson v. Paasche, 950 F.2d 306 (6th Cir.
1991), reply br. at 4-6 (relying on analogy posited in FTC v.
Figgie Int'l, Inc., 994 F.2d 595 (9th Cir. 1993)). In the
context of a case in which the property interest at stake is
of a tangible nature, it seems logical that an injury to that
property, and consequently the fact of damage under RICO,
may be demonstrated by reference to external conditions or
the occurrence of events which cause the value of the real
or personal property to be reduced. See Genty v. Resolution
Trust Corp., 937 F.2d 899, 918 (3d Cir. 1991) (district court
permitted plaintiffs to recover damages under RICO for
economic harm occasioned by the loss of the market value
of their homes as a consequence of defendants' fraud in
connection with their sale of real property near toxic waste
landfill); Northeast Women's Ctr., Inc. v. McMonagle, 868
F.2d 1342, 1349 (3d Cir. 1989) (finding that plaintiff
satisfied economic injury element of RICO where it
established that defendants entered plaintiff 's premises
and destroyed and damaged certain of its medical
equipment); see also Oscar, 965 F.2d at 790-91 (Kleinfeld,
J., dissenting) (opining that injury to property element of
RICO can be satisfied by tenant's claim that defendants'
tortious conduct caused injuries to her possessory interest
in leasehold, even if the injury caused no out-of-pocket loss
to the tenant; dissent argued vigorously that property
damage would be incurred and measured by virtue of the
reduction in the value of the tenant's property interest);
Thompson, 950 F.2d at 313 (finding that the fact of damage
was demonstrated by the existence of the mineral lease on
plaintiffs' property, which plaintiffs claimed that defendant
procured through fraud; the damage stemmed from the fact
that the lease itself reduced the market value of the
property).
Here, however, the property at issue is not real or
personal property; rather, it is a contract for health
31
insurance.14 Thus, the nature of appellants' property
interests at stake is their contractual right to receive
benefits in the form of covered medical services. See
Pegram, ___ U.S. ___, 120 S.Ct. at 2149 ("The defining
feature of an HMO is receipt of a fixed fee for each patient
enrolled under the terms of a contract to provide specified
health care if needed."); Dukes v. U.S. Healthcare, Inc., 57
F.3d 350, 358 (3d Cir. 1995) (noting that benefit contracted
for by enrollees in HMO plan is health care services); see
also Oscar, 965 F.2d at 789-90 (Kleinfeld, J., dissenting)
(discussing the nature of the property rights at issue in
Berg v. First State Ins., 915 F.2d 460, and observing that
plaintiffs' property interests in their liability insurance
policies were in the nature of a contract right). When
viewed from this correct perspective, the economic harm to
appellants' actual property interests cannot be
characterized in terms of a "diminution in product value,"
because the property rights at issue are different from
interests in real or personal property. See Oscar, 965 F.2d
at 789-90 (Kleinfeld, J., dissenting) (explaining that the
kind of property interest at stake determines the type of
economic injury realized; where property at issue is in the
nature of real or personal property, a reduction in property
value is the harm suffered, but where property interest is in
the nature of a contract right, financial losses occasioned
by defendant's breach constitute the economic harm
suffered). And inasmuch as an economic injury to
_________________________________________________________________
14. Ignoring the distinction between one's interest in real and personal
property on the one hand, and the type of property interest conveyed
under a contract, appellants rely substantially on the analysis of the
Court of Appeals for the Eighth Circuit in Bennett v. Berg, 685 F.2d
1053, 1058 (8th Cir. 1982), aff 'd on reh'g , 710 F.2d 1361 (8th Cir.
1983), in which the court found that the plaintiffs' complaint pleaded a
valid injury to property under RICO based on their allegation that the
value of their contracts for "life care" was different than they were led to
expect through the defendants' promises. The outcome in Bennett is of
little help to appellants because the case did not involve a contract for
health insurance. Moreover, it did not consider the point we make in the
text, namely that economic damages based on a decrease in property
value occur in situations in which the property right at issue is tangible,
i.e., real or personal property. In any event, to the extent that the result
in Bennett may be inconsistent with our reasoning, we will not follow it.
32
appellants' "property" could not stem from a reduction in
its value given the nature of the property interests at stake,
appellants' protestations notwithstanding, the fact that
Aetna implemented allegedly "restrictive and coercive"
internal policies cannot be considered the determinative
factor that caused appellants to suffer an economic loss
compensable under RICO.
Thus, the issue that we must resolve is how appellants
could establish the fact of damage in this context, i.e., what
set of factual circumstances must they plead and prove to
establish a compensable "injury" to their contractual rights
under Aetna's HMO plan, thus causing them consequential
monetary loss. In other words, what is the external event or
condition which would cause appellants to have suffered
economic harm, and have appellants alleged facts
demonstrating that the necessary injury-causing event has
occurred?
Because appellants' property interests in their
memberships in Aetna's HMO plan take the form of
contractual rights to receive a certain level (quantity and
quality) of benefits from Aetna through its participating
providers, see Pegram, ___ U.S. ___, 120 S.Ct. at 2149, it
inexorably follows that appellants cannot establish a RICO
injury to those property rights (which in turn would cause
financial loss in the form of overpayment for inferior health
insurance) absent proof that Aetna failed to perform under
the parties' contractual arrangement. See Oscar , 965 F.2d
at 789 (Kleinfeld, J., dissenting) (discussing Berg and
noting that the "nature of the property [in Berg] was a
contract right. The only damages from injury to that
property would be on account of loss performance on the
contract."); Dornberger, 961 F. Supp. at 521-22 (where
plaintiff paid premiums for life insurance contract and
claimed that she suffered an injury to property stemming
from misrepresentations concerning the legality of the life
insurance contract, availability of guarantee fund protection
and accessability of local service representatives, court
found that plaintiff was required to allege facts which
supported an out-of-pocket loss; court stated that plaintiff
did not suffer RICO injury equivalent to full amount of
premiums paid because insurer continued to honor
33
insurance policies and therefore had not "failed to perform"
in the sense that it failed to pay out on the policies).
In this factual setting, Aetna's failure to perform (and
concomitantly appellants' injury to their property) would be
evidenced by appellants' receipt of inadequate, inferior or
delayed care, personal injuries resulting therefrom, or
Aetna's denial of benefits due under the insurance
arrangement. Absent allegations of such losses, which
appellants specifically indicate are not involved in this case,
they cannot establish that they have suffered an injury to
their property rights encompassed in their HMO
memberships--i.e., their right to receive necessary medical
services covered under their plan, and cannot prove a
consequential financial loss flowing from their property.
See, e.g., Dornberger, 961 F. Supp. at 521 ("Case law does
indicate that a plaintiff who is fraudulently induced to enter
into a transaction does not suffer injury within the meaning
of S 1964(c) until the defendant fails to perform--that is,
until it becomes clear that the plaintiff will not get the
benefit of the bargain.").
Apparently recognizing that the property interests at
stake are in the nature of contractual rights to health care
benefits rather than tangible property rights from which
injury is demonstrated by events causing a diminution in
value, appellants make a secondary argument that they
have pleaded injury in this case by referring to Aetna's
failure to implement policies and practices in accordance
with its commitment to its members to "raise the quality of
health care." See br. at 26, 33. Analogizing to the district
court's analysis in Dornberger, see 961 F. Supp. at 522, see
reply br. at 8, appellants claim to have suffered economic
harm, i.e., lost money, by virtue of Aetna's breach of its
specific promise to implement policies and practices which
supposedly permitted physicians to provide Aetna's HMO
enrollees with quality health care.
Invoking the legal principle that payment for services not
rendered can constitute a valid injury to property under
RICO, see id. at 523, appellants claim that they suffered
that exact loss here--they paid a specific part of their
premium dollars for the benefit of Aetna's promises to
implement policies designed to foster quality health care
34
and have been injured in their property by Aetna's"failure
to perform as promised." Because the "services not
rendered" aspect of their injury argument only refers to
Aetna's purported promise to implement policies and
practices geared towards quality health care, appellants
contend that "what the doctors do or don't do is irrelevant."
Tr. of Oral Arg. at 14; see also br. at 25-26 ("Plaintiffs do
allege . . . that they were denied something Aetna promised
it would provide its members as an inducement for, and in
consideration of, the members' enrollment. . . .[P]laintiffs
and other Class members paid premiums and copayments,
not just to receive treatment from physicians, but also to
obtain the benefit of Aetna's services in arranging and
providing increased quality of care.").
We need not tarry on this argument, as it is premised on
an erroneous characterization of Aetna's responsibilities to
its enrollees as defined by the parties' contractual
arrangement and Aetna's alleged extra-contractual
promises to deliver "quality health care." Notwithstanding
appellants' creative description of Aetna's obligations to its
HMO members, as we have explained they undoubtedly
sought from Aetna, and Aetna promised to provide its
members, with a different contractual benefit--namely the
right to receive covered health care benefits in the form of
medically necessary supplies, health care services and
treatment through Aetna's participating providers. See
Pegram, ___ U.S. ___, 120 S.Ct. at 2149. Indeed, our review
of the relevant contractual provisions and purported extra-
contractual promises confirms our understanding of
Aetna's obligations to its HMO members as their health
insurer. See, e.g., JA-200, JA-208 (Certificate of Coverage,
Introduction and "Covered Benefits" sections) (stating that
"HMO agrees with contract holder to provide coverage for
benefits" and that covered benefits, i.e. , various services
and supplies described therein, are those which are deemed
"medically necessary" by HMO); JA-209 to JA-219 (detailing
members' specific covered benefits in parts A-R of
Certificate of Coverage, including, inter alia , "Primary Care
Physician Benefits," "Diagnostic Services," "Maternity Care,"
"Inpatient Hospital and Skilled Nursing Facility Benefits,"
"Emergency Care/Urgent Care Benefits," "Durable Medical
Equipment Benefits," "Injectable Medications"); see also,
35
e.g., JA-29 to JA-30 (stating that Aetna represented that
"its primary commitment, in connection with the health
care services provided to its HMO members, is to maintain
and improve the quality of care given to such members");
JA-30 ("We're committed to Raising the Quality of
Healthcare in America."); id. (Raising the quality of
healthcare is our goal.").
Accordingly, regardless of appellants' description of
Aetna's obligations to its HMO enrollees, contractual or
otherwise, it is obvious that Aetna's primary commitment to
its HMO plan members is to provide quality health care
services through its participating provider network.
Concomitantly, appellants' contractual benefit is their
receipt of quality medical services from those sources. We
reach this conclusion because the provision and receipt of
covered medical care is at the heart of the parties'
contractual arrangement and is the driving force behind the
purchase of health care insurance. See In re U.S.
Healthcare, Inc., 193 F.3d 151, 162 (3d Cir. 1999) ("[W]hen
the HMO acts under the ERISA plan as a health care
provider it arranges and provides medical treatment directly
or through its hospitals, doctors or nurses."), cert. denied,
___ U.S. ___, 120 S.Ct. 2687 (2000); Dukes, 57 F.3d at 358
(noting that the benefit contracted for under HMO plan is
health care services).
It necessarily follows from this observation that
appellants' hypothesis that they suffered financial losses as
result of Aetna's failure to implement policies designed to
increase the quality of health care is untenable. Their
argument rests on the faulty proposition that Aetna's
implementation of the policies and practices outlined in the
complaint amounts to a failure to perform a specific
promise to its members, and misconstrues the nature of
Aetna's role and its ultimate duty in arranging and
providing for its members' health care. See Dukes, 57 F.3d
at 361 (noting that one of the HMO's roles is to arrange for
the actual medical treatment for plan recipients). Indeed,
while we do not quarrel with appellants' statement that
Aetna implemented the managerial policies at issue while
performing its role in arranging and providing medical
treatment to its members rather than its role as plan
36
administrator, see Tr. of Oral Arg. at 14-15, see also In re
U.S. Healthcare, Inc., 193 F.3d at 162-63, that observation
does not alter the fact that Aetna's contractual duty to its
members is to provide medically necessary health care
benefits in the form of covered services and supplies, i.e.,
medication, either directly or through contracts with third
party medical providers. See id. at 162. Accordingly, we
decline appellants' invitation to define Aetna's duties as
narrowly as they suggest.15
It is evident to us from the foregoing analysis that given
the nature of the property interests at stake, appellants'
RICO injury theory predicated on the concept of a
"diminution in product value" simply has no application
here. Rather, in the context of this RICO suit based on
what appellants have deemed to be "inferior" health
insurance they received under Aetna's HMO plan, it follows
from the nature of their property interests in their HMO
memberships that they would be injured only to the extent
that they could show that they suffered medical injuries, a
denial or delay of medically necessary care, or the receipt of
inferior or inadequate care. We emphasize that any
personal injuries resulting from Aetna's policies and
practices would not constitute a compensable RICO injury,
see Genty, 937 F.2d at 918-19, Oscar, 965 F.2d at 786, but
instead would serve as the necessary factual predicate for
_________________________________________________________________
15. Appellants intimate that because their complaint is predicated on
conduct by Aetna in its role as medical provider rather than its role of
benefits administrator, it is not necessary that they demonstrate that
benefits have been denied, reduced or delayed as a consequence of
Aetna's systemic policies and practices. See Tr. of Oral Arg. at 14-15
(citing In re U.S. Healthcare, Inc. and suggesting that the district court's
analysis confused Aetna's two roles). We cannot agree. We do not read
Dukes v. U.S. Healthcare, Inc., 57 F.3d 350, or In re U.S. Healthcare, Inc.,
193 F.3d 151, as suggesting that appellants could establish economic
harm in the circumstances presented here absent proof that Aetna's
policies and practices actually caused its HMO enrollees' level of health
care to be diminished or compromised. Indeed, those cases addressed
the totally separate issue of whether certain state law negligence claims
brought against U.S. Healthcare, Inc. were subject to complete
preemption under section 502(a) of ERISA, 29 U.S.C.S 1132(a). See In re
U.S. Healthcare, Inc., 193 F.3d at 155 (describing issue presented there
and in Dukes).
37
their argument that they suffered an injury to their
property interests--their contractual rights to receive
insurance coverage and necessary medical services under
Aetna's HMO plan--which in turn caused them
consequential financial loss in the form of overpayment for
the coverage they actually received.
B.
Apart from the analytical problem we described in the
preceding discussion, we also reject appellants' theory of
RICO injury resting on the purported diminution in product
value because, even if we view Aetna's HMO plan as a
"health care product" as appellants suggest, as a matter of
simple logic, they obviously cannot show that they actually
received something "inferior" and "worth less" absent
individualized allegations concerning the quantity and
quality of health care benefits Aetna provided under its
HMO plan. Put differently, assuming arguendo that the
injury claimed is predicated solely on the allegedfinancial
loss of premium dollars stemming from appellants'
purchase of an "inferior health care product," the harm
alleged, i.e., overpayment, cannot exist absent proof of
some level of inferior treatment under Aetna's HMO plan.
Appellants cannot reasonably deny that any argument to
the contrary overlooks the fact that the level of health care
services that one receives under a health insurance plan
bears a direct relationship to the "quality" of the product,
i.e., that person's health insurance, inasmuch as the point
of procuring health insurance through an HMO plan is to
secure the benefit of receiving necessary medical treatment.
See Pegram, ___ U.S. ___, 120 S.Ct. at 2149 (stating that
HMO is contractually bound to provide promised benefits,
even if the cost of medically necessary treatment exceeds
premiums paid); see also Dukes, 57 F.3d at 358 (noting
that benefit contracted for by enrollees in HMO plan is
health care services). Given that the concept of"quality"
health insurance is tied inextricably to the level and
adequacy of health care that Aetna's HMO members receive
individually under Aetna's HMO plan, the conclusion that
appellants' posit, i.e., that they have been harmed
economically by Aetna's conduct in providing an inferior
38
"product" in the form of inferior health insurance to its
HMO enrollees, is provable only by reference to the level
and adequacy of care that Aetna gave to its HMO members
under its plan. Cf. Rosario, 963 F.2d 1016-17 (in evaluating
plaintiffs' RICO fraud claim against beauty schools and
owner, court cited testimony concerning substandard
facilities, equipment and teachers which supported
plaintiffs' assertion that the quality of education they
received from defendants was poor, thus resulting in
damages equal to the amount of loan payments incurred for
educational purposes).
Indeed, we believe that appellants implicitly (albeit not
intentionally) conceded this point at oral argument when
we asked counsel to articulate their fraud theory and she
gave the following response:
Our fraud theory is that Aetna misrepresented the
type of health insurance coverage that its HMO would
provide. It is not just based on the quality
representations they've made, but its also based
independently upon their promises that doctors make
medical decisions, and that doctors are compensated
pursuant to a scheme that enhances quality care, as
well as the underlying omissions that are not disclosed
and which clearly render these affirmative statements
misleading.
And the fraud is that this is not what they give.
Instead, they give you a policy, an HMO product which
is of lesser value, because its systems--its systemic
practices in fact give you less. It is totally inconsistent
with their representations.
Tr. of Oral Arg. at 30-31 (emphasis added). Counsel's
statement to the effect that the fraud (and consequently the
RICO injury) in this case rests on the concept that Aetna's
policies and practices "gave [appellants'] less" in terms of
the health insurance coverage it provided through its HMO
to its members highlights what we perceive as the fatal
defect in appellants' RICO injury theory as they have
articulated it. Simply put, appellants cannot demonstrate
that Aetna's policies "gave [appellants] less" of a "health
care product" than what Aetna promised to deliver in terms
39
of the level and quality of health care coverage under its
HMO plan unless they allege and prove that those systemic
practices actually negatively affected the health care that
Aetna provided to its HMO members through its
participating providers.
In the circumstances, even according to appellants'
articulated theory of RICO injury predicated on their loss of
money from their purchase of an "inferior health care
product," they nevertheless would be required to allege and
prove that the level of care they received under Aetna's
HMO plan actually was inferior to that which was
promised, and therefore "worth less" than they paid for it.
As we explained previously, any personal injuries that
Aetna's enrollees might have suffered as a consequence of
Aetna's management decisions would not constitute the
RICO injury. Rather, the occurrence of an injury-causing
event such as, for example, a denial of adequate care or a
delay in treatment is viewed more appropriately as the
contingency upon which appellants' economic damages are
dependent.
In other words, allegations of the foregoing nature are
necessary to provide the factual basis for appellants'
otherwise conclusory allegation that they have been injured
in their "property" because they overpaid for Aetna's inferior
health care product. Cf. Briehl v. General Motors Corp., 172
F.3d 623, 628 (8th Cir. 1999) (rejecting plaintiffs' claim that
their cars were "defective" because ABS system functioned
in a manner that was counter-intuitive to drivers' natural
braking tendencies and therefore "worth less" to
consumers, stating "[w]here, as in this case, a product
performs satisfactorily and never exhibits an alleged defect,
no cause of action lies [for fraud, breach of implied
warranty and violation of state consumer protection laws].
Since the Plaintiffs have failed to allege any manifest defect
and their vehicles perform in a satisfactory manner, the
District Court was correct when it dismissed the Plaintiffs'
original complaint."). Absent such assertions of diminished
benefits or care under Aetna's HMO plan, appellants simply
cannot establish as a factual matter that they received
anything less than what they bargained for and Aetna
promised to provide, i.e., a quality health care product, and
40
consequently cannot claim that they paid too much for the
health insurance they received.
C.
When we analyze appellants' argument as to why they
need not plead and prove allegations concerning the level of
care they received to establish the fact of damage, i.e., their
RICO "injury to property," it becomes evident why their
position is fundamentally flawed. Given the total absence of
any particularized allegations to the effect that the medical
care appellants received pursuant to Aetna's HMO plan was
compromised or diminished as a consequence of Aetna's
internal policies and practices, the fact of damage,
according to appellants' theory of financial injury, obviously
is predicated on the concept that the mere possibility that
a physician might be influenced by Aetna's policies to
provide substandard medical care to Aetna's enrollees as a
class demonstrates that the health care insurance they
actually received is inferior or "worth less" than the amount
appellants expended in premium payments. As the district
court described it, appellants' claim of out-of-pocket losses
as articulated rests on "a vague allegation that quality of
care may suffer in the future. . . ." Maio , 1999 WL 800315,
at *2.
We agree with the district court's finding that this
articulated theory of financial injury is insufficient to confer
standing on appellants under RICO because it is premised
solely on their conclusion that the economic value of the
health insurance they purchased is reduced only because
of the possibility that the quality of care administered
under Aetna's health plan will suffer in some undefined
way at some later point in the future. We understand
appellants' theory in this regard to be as follows: the fact
that the policies and practices described in the complaint
exist make it a near certainty that they will receive
diminished or compromised health care eventually, which
in turn demonstrates that they have suffered a present
economic loss in the form of overpayment for inferior health
insurance.
But what appellants fail to realize is that the present
economic harm they allege to have suffered necessarily is
41
contingent upon the impact of events in the future which
have not yet occurred. After all, as we previously pointed
out, appellants pleaded that they are not seeking to recover
for personal injury, denial of benefits or wrongful death
already suffered. Moreover, appellants have confirmed that
they do not claim that the quality of their health care was
inadequate, and are not relying on their general averments
that "benefits were reduced." In other words, according to
appellants, the "inferior" nature of the health insurance,
and consequently their financial loss, stems only from the
high probability that given the nature of the policies and
practices Aetna has implemented, they will receive
something less than high quality health care when they
need it, which in turn demonstrates that the health
insurance is "inferior."
Inasmuch as this articulated theory of RICO injury is
predicated exclusively on the possibility that future events
might occur, rather than on the actual occurrence of those
events and their present effect on the value of the health
insurance appellants received, we agree with appellees that
appellants' theory of present economic loss requires a
significant degree of factual speculation, and is in that
sense insufficient to support a cause of action under RICO.
See Gelt Funding Corp., 27 F.3d at 768 (holding that lender
suffered no present RICO injury stemming from allegedly
fraudulently induced loans to borrowers where lender
claimed out-of-pocket losses on account of outstanding
undersecured loans prior to the completion of foreclosure
proceedings on the loans; court rejected the "novel theory
that [lender] was damaged simply by being undersecured
when, with respect to those loans which had not yet
foreclosed, the actual [monetary] damages it will suffer, if
any," had not been determined); Oscar, 965 F.2d at 787
(where plaintiff claimed economic harm compensable under
RICO because she allegedly possessed interest in leasehold
that she could sublet but appellees' racketeering activity
had the effect of reducing the rent she could charge, court
rejected theory of financial injury as "purely speculative";
court observed that plaintiff 's complaint "never alleged that
she ha[d] a right to sublet her apartment, and in any event,
did not allege that she ever sublet the apartment, ever
attempted to sublet the apartment, or . . . ever wished or
42
intended" to do so); Dornberger, 961 F. Supp. at 522 (noting
that plaintiff suffered no financial loss stemming from
insurer's alleged failure to provide guaranty fund protection
as promised in plaintiff 's insurance agreement, as "the
guaranty fund would only become relevant upon
[defendants'] insolvency, a future event whose occurrence is
speculative"); see also In re Taxable Municipal Bond Sec.
Litig., 51 F.3d 518, 523 (5th Cir. 1995) (holding that
plaintiffs lacked standing under RICO because his damages
claim "would have required extensive speculation and
would not simply entail a calculation of present, actual
damages"); Steele, 36 F.3d at 70-71 (noting that a showing
of RICO injury requires proof of concrete financial loss); cf.
Briehl, 172 F.3d at 626, 628-29 (where plaintiffs claimed
economic injury in the form of a reduction in the resale
value of cars with anti-lock break systems which allegedly
performed "in a manner completely counter-intuitive to how
an average driver is conditioned to respond when a hard
braking maneuver is attempted," court rejected damages
theory as predicated on economic harm (and a measure of
damages) that was "too speculative to allow this case to go
forward;" court noted that plaintiffs had not alleged that
their ABS brakes malfunctioned or failed, had not alleged
that they attempted to resell their vehicles, and had sought
to set their damages as the difference between a vehicle
with an ABS system that they expected and the system that
actually is installed in each of their vehicles).
Overall, we are satisfied that if we were to permit
appellants to proceed with their RICO claims based on
allegations of monetary loss proved solely by reference to
what they consider to be the existence of coercive internal
policies and practices which inevitably will affect the quality
of care they will receive in the future, we would be
expanding the concept of RICO injury beyond the
boundaries of reason. See DeMauro, 115 F.3d at 97 (noting
that injury to property "is not an infinitely elastic concept").
Appellants posit that they have lost money because their
health insurance is inferior as a result of Aetna's policies,
but the only basis for their conclusion is their subjective
determination that the policies and practices are so
inherently unsound that they inevitably will serve as the
impetus for physicians to provide substandard health care
43
to their patients at the point at which the enrollees actually
seek treatment.
If there were any doubt concerning the result we reach,
which there is not, with respect to the message underlying
appellants' damages theory, it surely would vanish when
considered against the backdrop of the Supreme Court's
recent decision in Pegram v. Herdrich, ___ U.S. ___, 120
S.Ct. 2143. Given our analysis, it is evident that in the
absence of allegations that the quantity or quality of
benefits have been diminished, the only theoretical basis for
appellants' claim that they received an "inferior health care
product" is their subjective belief that Aetna's policies and
practices are so unfavorable to enrollees that their very
existence in Aetna's HMO scheme demonstrates that they
overpaid for the coverage they received. Indeed, the concept
underlying appellants' injury theory is unmistakable--the
very structure of Aetna's HMO plan is poor in the sense
that its policies and practices inevitably will result in
physicians providing inadequate health care to Aetna's
HMO enrollees, which in turn means that appellants are
paying too much for inferior health care benefits.
Put differently, we believe that the not-so hidden message
underlying appellants' RICO claims (and more specifically
their injury theory) is as follows: while these policies might
be good for Aetna's business (because that they promote
increased profits and induce physicians to ration care), they
certainly are not beneficial to Aetna's HMO members
because they are medically unsound in that they restrict a
physician's ability to make independent medical judgments
and encourage physicians to withhold otherwise
appropriate health care so as to increase Aetna's"bottom
line" profits.16 See generally Pegram, ___ U.S. ___, 120 S.Ct.
(Text continued on page 46)
_________________________________________________________________
16. We only need cite a few examples from the complaint to demonstrate
what we perceive to be at the core of appellants' RICO claims--their
ultimate dissatisfaction with the policies and practices outlined in the
complaint:
68. As a result of these and other systemic practices, defendants
have significantly interfered with the physician's medical decision-
making process and have substantially reduced the quality of care
appellants and the class members receive.
44
69. In fact, Aetna's practices have come under considerable
scrutiny from physicians, including the American Medical
Association ("AMA"), who have criticized the terms of the provider
agreements as reducing the overall quality and amount of
healthcare services provided to HMO members and restricting the
physician's ability to make independent medical decisions regarding
a patient's healthcare.
. . . .
75. The AMA also specifically identified the following clauses in the
provider agreements which restrict a physician's ability to practice
medicine and reduce the quality [of] health care provided to plan
members:
. . . .
- Interference with medical decision-making, defining covered
services in terms of medical necessity and giving Aetna-USHC the
final authority to supersede a physician's determination
regarding the necessity of medical care; defining medical
necessity by focusing minimally on clinical medicine and instead
. . . on cost and convenience to the plan, leaving out any role for
the treating physician to determine medical necessity.
JA-40 to JA-43. Indeed, the complaint also documents in several
paragraphs various AMA press releases which criticize, among other
things, the nature of Aetna's provider contracts andfinancial incentives.
See, e.g., JA-41 (quoting AMA press release stating that "[w]e believe
these contracts clearly are not in the patient's best interest. . . . These
provisions completely blur the line between services that are medically
necessary and services that the plan simply does not want to cover.")
(alteration in original); JA-43 (quoting AMA press release stating "[w]e
have received numerous complaints from physicians around the country
both about the non-negotiability of [Aetna's] contracts and about
provisions that potentially undermine the patient-physician
relationship."); JA-47 ("Aetna's most recent contract embarrassment
came last month, when four Aetna-owned HMOs were among six
managed care plans sued by the Texas Attorney General for contract
provisions that allegedly amounted to illegal payoffs to doctors to limit
patient care and penalties to those who did not.") (alteration in original);
JA-48 (quoting statement from AMA which pointed out that "for the past
year, the AMA has attempted to convince Aetna to ease harmful
practices that are not in the best interests of patient care and adopt
practices that will restore trust on the part of patients and physicians").
45
at 2149 (discussing financial structure of HMOs and the
fact that profits are tied to physicians' rationing care);
Herdrich v. Pegram, 154 F.3d 362, 375-78 (7th Cir. 1998)
(citing and discussing views of various critics of HMOs),
rev'd, ___ U.S. ___, 120 S.Ct. 2143 (2000); Clark C.
Havighurst, Vicarious Liability: Relocating Responsibility for
the Quality of Medical Care, 26 Am. J. L. & Med. 7 (2000)
(opening article with observation that "[m]anaged health
care has recently generated a great deal of distrust, even
anger, in the public mind"); Edith M. Kallas et al., Class
Actions in the Heathcare Context, SE 34 ALI-ABA 505, 508
(Oct. 1999) (noting generally that there are "many ways in
which the structure of the healthcare industry today is
particularly apt to cause harm to classes of similarly
situated individuals"). Thus, we think it fair to characterize
appellants' injury theory as bottomed on the notion that
Aetna's policies challenged in the complaint render its HMO
structure "bad" in comparison to the other types of health
care insurance available in the marketplace.17
The force of this position, we believe, has been
undermined significantly by the Supreme Court's recent
decision in Pegram in which the Court rejected the
plaintiff 's attempt to challenge the existing structure of an
incentive scheme of one particular HMO under the rubric of
a breach of fiduciary duty claim under ERISA. In Pegram,
the plaintiff sued her health maintenance organization and
its related entities (collectively "Carle"), claiming that Carle's
HMO structure, which rewarded its physician/owners for
_________________________________________________________________
17. We further point out that appellants' broad statements in the
complaint to the effect that appellees' policies and practices actually
"reduced the quality of health care" its members received only serve to
highlight the point we make in the text. Indeed, appellants' vague
allegations that the policies and practices in and of themselves
demonstrate that the level of benefits is reduced confirm that appellants'
RICO claims, at bottom, are predicated on the notion that Aetna's
particular HMO structure is legally objectionable. See, e.g., JA-40 ("As a
result of these and other systemic practices, defendants have
significantly interfered with the physician's medical decision-making
process and have substantially reduced the quality of care plaintiffs and
the Class members receive.").
46
rationing medical care in the form of a "year-end bonus,"
entailed an "inherent or anticipatory breach" of its fiduciary
duty to its participants. See Pegram, 120 S.Ct. at 2153. In
rejecting the Court of Appeals for the Seventh Circuit's
attempt to limit its holding to the particular structure of
Carle's HMO, the Supreme Court recognized that federal
courts are not in a position to judge the social value of one
HMO structure over another, because "any legal principle
purporting to draw a line between good and bad HMOs
would embody, in effect, a judgment about socially
acceptable medical risk." Id. at 2150. The Court explained
the reasons why it believed that any attempt to distinguish
among various HMO schemes was unwise:
A valid conclusion of this sort would, necessarily, turn
on facts to which courts would probably not have ready
access: correlations between malpractice rates and
various HMO models, similar correlations involving fee-
for-service models, and so on. And, of course,
assuming such material could be obtained by courts in
litigation like this [under ERISA], any standard defining
the unacceptably risky HMO structure (and consequent
vulnerability to claims like Herdrich's) would depend
on a judgment about the appropriate level of
expenditure for health care in light of the associated
malpractice risk. But such complicated fact finding and
such a debatable social judgment are not wisely
required of courts unless for some reason resort cannot
be had to the legislative process, with its preferable
forum for comprehensive investigations and judgments
of social value, such as optimum treatment levels and
health care expenditure.
Id. Given these observations, the Court proceeded to its
substantive analysis of the plaintiff 's ERISA count on the
assumption that the types of decisions listed in the
plaintiff 's complaint, what the Court termed"mixed
eligibility and treatment decisions,"18 could not be subject
_________________________________________________________________
18. The Court noted that physicians routinely make mixed eligibility and
treatment decisions in the course of treating patients, and explained the
concept of a mixed eligibility and treatment decision by providing
examples:
47
to a breach of fiduciary claim unless all such decisions by
all HMOs were subject to the same sort of claims. See id.
at 2150-51 ("We think, then, that courts are not in a
position to derive a sound legal principle to differentiate an
HMO like Carle from other HMOs.").
Ultimately, the Court held that the plaintiff 's complaint
failed to plead a valid breach of fiduciary duty claim against
Carle. Specifically, the Court determined that Carle should
not be treated as an ERISA fiduciary to the extent that it
makes mixed eligibility and treatment decisions acting
through its physician/owners. The Court rejected the
plaintiff 's claim based in large part on the compelling policy
considerations that supported its result:
Our doubt that Congress intended the category of
fiduciary administrative functions to encompass the
mixed determinations at issue here hardens into
conviction when we consider the consequences that
would follow from Herdrich's contrary view. . . .[W]e
need to ask how this fiduciary standard would affect
HMOs if it applied as Herdrich claims it should be
applied, not directed against any particular mixed
decision that injured a patient, but against HMOs that
make mixed decisions in the course of providing
medical care for profit. Recovery would be warranted
simply upon showing that the profit incentive to ration
care would generally affect mixed decisions, in
derogation of the fiduciary standard to act solely in the
interest of the patient without possibility of conflict.
Although Herdrich is vague about the mechanics of
relief, the one point that seems clear is that she seeks
_________________________________________________________________
The kinds of decisions mentioned in Herdrich's ERISA count and
claimed to be fiduciary in character are just such mixed eligibility
and treatment decisions: physicians' conclusions about when to use
diagnostic tests; about seeking consultations or making referrals to
physicians and facilities other than Carle's; about proper standards
of care, the experimental character of a proposed course of
treatment, the reasonableness of a certain treatment, and the
emergency character of a medical condition.
Pegram, ___ U.S. ___, 120 S.Ct. at 2154-55.
48
the return of profit from the pockets of [respondent's]
HMO owners, with the money to be given to the plan
for the benefit of the participants. . . . Since the
provision for profit is what makes the HMO a
proprietary organization, her remedy in effect would be
nothing less than elimination of the for-profit HMO. . . .
It is enough to recognize that the Judiciary has no
warrant to precipitate the upheaval that would follow a
refusal to dismiss Herdrich's ERISA claim. The fact is
that for over 27 years the Congress of the United
States has promoted the formation of HMO practices.
. . . [T]he Federal Judiciary would be acting contrary to
the congressional policy of allowing HMO organizations
if it were to entertain an ERISA fiduciary claim
portending wholesale attacks on existing HMOs simply
because of their structure, untethered to claims of
concrete harm.
Id. at 2156-57.
We read the Court's approach in Pegram as undermining
the validity of appellants' RICO injury theory predicated on
the notion that their health insurance was rendered
"inferior" by Aetna's implementation of its managerial
policies outlined in the complaint. In particular, given that
the very concept underlying appellants' economic harm is
the notion that the structure of Aetna's HMO plan is faulty,
we cannot ignore the circumstance that appellants' injury
theory in essence asks us to pass judgment on the legal
validity of the policies and practices themselves.
Accordingly, we find particularly compelling that aspect of
Pegram which articulated clearly the myriad of practical
problems which undoubtedly arise in a situation in which
the federal courts are asked to determine the social utility
of one particular HMO structure as compared to another.
See id. at 2150. Indeed, we believe that the Court's
observations in evaluating the validity of the plaintiff 's
ERISA claim in that case apply with equal force where, as
here, appellants' theory of economic injury is predicated on
the notion that the structure of Aetna's HMO plan, with its
"coercive and restrictive" internal policies and practices,
renders the health insurance appellants actually received
from Aetna less valuable than it otherwise would have been
without those management decisions in place.
49
The critical point here is that if we were to accept
appellants' argument that the fact of damage can be
demonstrated without specific reference to the level or
quality of care actually provided to them under Aetna's
HMO plan, we would be making the social and medical
judgment that the particular structure of Aetna's HMO plan,
by its very nature, places it in the category of a"bad HMO"
as opposed to a "good HMO." There is no escaping that
analytical step because it is the very nature of Aetna's
HMO's structure which, according to appellants' theory,
demonstrates that the economic value of their health
insurance is reduced, that their insurance is inferior, and
that they paid too much in premium dollars for what they
actually received. But it seems clear that in view of the
Supreme Court's reluctance in Pegram to devise a uniform
standard by which federal courts could distinguish one
HMO scheme from another in terms of its social utility in
the context of an ERISA breach of fiduciary duty claim, we
must decline appellants' invitation to pass judgment on the
social utility of Aetna's particular HMO structure, albeit in
the context of evaluating whether appellants have stated an
injury to property under section 1964(c) of RICO. We
especially are constrained to reach our result in light of the
fact that appellants ask us to make such a determination
without reference to the level or quality of care that Aetna's
HMO members received while enrolled in its health plan.
Cf. id. at 2157 ("[T]he Federal Judiciary would be acting
contrary to the congressional policy of allowing HMO
organizations if it were to entertain an ERISA fiduciary
claim portending wholesale attacks on existing HMOs solely
because of their structure, untethered to claims of concrete
harm.").
We also point out that appellants' complaint in effect
asks that the trier of the fact inappropriately act as a state
regulatory commission and determine the value of Aetna's
product. After all the essence of appellants' claims is that
they overpaid for the product delivered. Thus, at a trial of
this case the trier of the fact would have to determine the
value of what Aetna provided. We reject the notion that in
the complex world of rate structures a trier of the fact,
probably a jury, can make such a determination.
50
In any event, inasmuch as we read Pegram as suggesting
that federal courts are ill-equipped to make the kind of
social judgment that our acceptance of appellants' injury
theory would require us to make, we remain convinced that
in order to demonstrate the fact of RICO injury to property
in the context of this case, appellants are required to
demonstrate that the benefits they received under Aetna's
HMO plan were compromised or diminished as a direct
consequence of the systemic practices alleged in the
complaint. Appellants therefore must allege and prove, for
example, that they suffered personal injuries, were denied
benefits, or received delayed or inadequate treatment
because of the structure of Aetna's HMO plan. In the
absence of such allegations, the district court's dismissal
was appropriate.
D.
Appellants make one additional argument that we will
address briefly. Notwithstanding that appellants have
stated unequivocally that they do not allege, nor intend to
prove in this case that the quality of care they actually
received pursuant to Aetna's HMO plan was compromised
or diminished as a result of Aetna's "systemic policies," they
contend nevertheless that their allegations of economic
damage are sufficient at this early stage in the proceedings
to demonstrate that they suffered an injury to property
sufficient to confer standing upon them under RICO to
challenge Aetna's allegedly fraudulent misrepresentations
and omissions. They point out that the Supreme Court has
held that " `[a]t the pleading stage, general factual
allegations of injury resulting from defendants' conduct
may suffice, for on a motion to dismiss we presume that
general allegations embrace those specific facts that are
necessary to support the claim.' " See br. at 39 (quoting
National Organization for Women, Inc. v. Scheidler , 510 U.S.
249, 256, 114 S.Ct. 798, 803 (1994), quoting in turn Lujan,
504 U.S. at 561, 112 S.Ct. at 2137). Essentially, they
appear to claim that our standard of review on a motion to
dismiss dictates that they should be given the benefit of the
doubt that they have suffered tangible economic harm.
51
Appellants' reliance on this principle is misplaced, for
while at the pleading stage we must accept as true all
factual allegations in the complaint and give plaintiffs the
benefit of all reasonable inferences, it is well settled that
"we need not accept as true unsupported conclusions and
unwarranted inferences." See West Penn Power Co., 147
F.3d at 263 n.13. Inasmuch as there are no allegations in
the complaint to the effect that appellants have received
inadequate care, suffered medical injuries, or have been
denied medically necessary care, the fair inference to be
drawn from the complaint, indeed the only inference that
could be drawn in view of appellants' arguments before us,
is that none of those events have occurred. See Angus v.
Shiley, 989 F.2d 142, 146-47 (3d Cir. 1993) ("The only fact
that was not explicitly set forth in the complaint on which
the court relied . . . was that the valve had not failed. Yet
that is the fair inference to be drawn from the complaint for
Angus did not plead that the valve had malfunctioned."). In
the absence of allegations concerning the quality and
quantity of benefits that each appellant received, and given
the disclaimers stated in the complaint, appellants' general
assertion of an "injury to property" amounts to an
"unwarranted conclusion" that we need not accept as true
for purposes of evaluating the sufficiency of the complaint.
Moreover, given appellants' concessions in the complaint,
which were explicated further in their arguments before us,
we cannot presume from their general allegation of injury
that appellants can prove "those specific facts" which we
deem essential to support their claim of injury to their
property. Obviously we cannot do so where, as here,
appellants state specifically that the facts concerning the
quality and quantity of care they received are not germane
to their RICO claims. Consequently, the procedural rule
that requires us to "presume specific facts from general
allegations" does not apply in this situation. Simply put,
the result we reach is completely consistent with the
appropriate standard of review on a motion to dismiss the
complaint and is compelled in view of the facts and the law
as we have stated it.19
(Text continued on page 54)
_________________________________________________________________
19. We address one final point. Appellants contend that the district court
erred in dismissing their RICO claims with prejudice without addressing
52
their request for an opportunity to replead their RICO claims to "cure
any perceived deficiencies." See br. at 61. While appellants did not file an
amended complaint or a formal motion for leave to amend before the
district court, they asked for the opportunity to amend their complaint
at the conclusion of their brief in opposition to appellees' motions to
dismiss. Appellants assert that the district court abused its discretion in
not addressing their request, in that it "did not hold that amendment of
the complaint would be futile. Appellants were never afforded an
opportunity to amend their complaint, which they possessed as of right
as they never previously amended prior to dismissal." Id. at 63.
At oral argument, we asked appellants' counsel what additional facts
or legal theories that they would plead if given the opportunity on
remand:
THE COURT: . . . What is it you want to replead? What was it you
would have pleaded that you didn't plead.
APPELLANTS' COUNSEL: Well, I believe that we have pleaded
sufficiently to withstand a 12(b)(6) motion. But, you know, if, for
example the Court believes that we need to more fully plead what
exactly it is that Aetna was promising that it would do [--a]nd,
again, I believe the Complaint sets this forth--[w]e could do that
with greater particularity talking about the kind of system they
didn't put in place as contrasted with the policies and practices they
did have in place.
Tr. of Oral Arg. at 29-30.
From our colloquy, we understand appellants as requesting leave to
amend in the event that we affirm the dismissal on the ground of lack
of factual specificity or some other readily curable defect. However, given
the facts of this case, the legal theory presented, and appellants'
unequivocal position that in view of the economic harm alleged, "what
the doctor does or doesn't do is irrelevant," id. at 14, it would not be
possible for appellants to amend the complaint to cure the fundamental
problem with the complaint as it presently reads. Compare Newark
Branch, N.A.A.C.P. v. Town of Harrison, New Jersey , 907 F.2d 1408,
1417 (3d Cir. 1990) (affirming district court'sfinding that complaint's
allegations were inadequate to demonstrate plaintiff 's associational
standing, but vacating district court's order denying plaintiff 's motion for
leave to amend because it "believe[d] that the proposed amendment is
not facially meritless"). Thus, while we are aware, as appellants point
out, that in Lorenz v. CSX Corp., 1 F.3d 1406, 1413 (3d Cir. 1993)
(quoting Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230 (1962)),
53
V. CONCLUSION
Based on the information pleaded in the complaint, we
hold that appellants have failed to allege the facts
necessary to support their assertion that they paid too
much for the health insurance they received from Aetna.
Specifically, appellants have not alleged, for example, that
they suffered medical injuries, received inadequate or
inferior care, or sought but were denied necessary care as
a consequence of the structure of Aetna's HMO plan, which
includes the "systemic policies and practices" challenged in
the complaint. In the circumstances, appellants cannot
establish that they suffered a cognizable "injury to business
or property" flowing from appellees' conduct, an essential
element of a civil action pursuant to section 1964(c) of
RICO.
For the foregoing reasons, the district court's judgment of
September 29, 1999, will be affirmed.
_________________________________________________________________
we observed that " `outright refusal to grant the leave without any
justifying reason' " amounts to an abuse of the court's discretion granted
to it by virtue of Rule 15(a), this is not a situation in which appellants
simply need to allege more specific factual information in order to
overcome another defense motion to dismiss. Rather, given appellants'
stated intention not to rely on allegations of individual medical harm
flowing from Aetna's policies, and the law as we have stated it, plaintiffs
could not file an amended pleading that would survive dismissal
pursuant to Rule 12(b)(6). In the circumstances, then, we will not
disturb the district court's denial of appellants' request for leave to
amend, as it clearly would be futile to remand this matter to the district
court for further proceedings. See Dykes v. Southeastern Pa. Transp.
Auth., 68 F.3d 1564, 1572 n.7 (3d Cir. 1995) ("While plaintiff elected to
appeal the dismissal of the complaint rather than seek leave to amend
under Fed. R. Civ. P. 15, this fact alone does not preclude amendment
of the complaint. . . . This is not a situation, however, where the
complaint has been dismissed for lack of specificity or some other readily
curable defect. Given the facts of this case and the law as we have stated
it, amendment of the complaint will not result in its being found
sufficient to withstand a renewed motion under Fed. R. Civ. P. 12(b)(6).");
cf. Foman, 371 U.S. at 182, 83 S.Ct. at 230 (stating that leave should be
freely given where "the underlying facts or circumstances relied upon by
the plaintiff may be a proper subject of relief ") (emphasis added).
54
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
55