Jerald Friedman v. Aarp, Inc.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

JERALD FRIEDMAN, Individually and No. 14-56765
on Behalf of All Others Similarly
Situated, D.C. No.
Plaintiff-Appellant, 2:14-cv-00034-
DDP-PLA
v.

AARP, INC.; AARP SERVICES, INC; OPINION
AARP INSURANCE PLAN;
UNITEDHEALTH GROUP, INC.;
UNITEDHEALTH CARE INSURANCE
COMPANY,
Defendants-Appellees.

Appeal from the United States District Court
for the Central District of California
Dean D. Pregerson, District Judge, Presiding

Argued and Submitted October 19, 2016
Pasadena, California

Filed May 3, 2017

Before: Richard C. Tallman, Barrington D. Parker, Jr.*
and Morgan Christen, Circuit Judges.

Opinion by Judge Parker

*
Senior United States Circuit Judge for the U.S. Court of Appeals for
the Second Circuit, sitting by designation.
2 FRIEDMAN V. AARP

SUMMARY**

California Insurance Law

The panel reversed the district court’s Fed. R. Civ. P.
12(b)(6) dismissal of a complaint brought by a plaintiff
Medicare beneficiary who purchased private supplemental
health insurance through a group Medigap policy, alleging
that AARP Insurance Plan transacted insurance without a
license in violation of the California Insurance Code.

California’s Unfair Competition Law (“UCL”) broadly
prohibits “unfair competition,” defined as “any unlawful,
unfair or fraudulent business act or practice.” Cal. Bus. &
Prof. Code § 17200.

The panel held that plaintiff stated a plausible claim at the
motion to dismiss stage that AARP “solicits” insurance
without a license, and, as a consequence, committed an
“unlawful” act in violation of the UCL.

The panel also held that plaintiff adequately alleged that
defendants violated the “fraudulent” and “unfair” prongs of
the UCL. The panel concluded that plaintiff plausibly alleged
that members of the public were likely to be deceived where
AARP allegedly misleadingly told its members that their
payment only covered AARP’s expenses and the premium for

**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 FRIEDMAN V. AARP 3

UnitedHealth’s Medigap coverage, but in reality, the
payments included an imbedded commission which was not
an expense payment.

The panel remanded for further proceedings.

COUNSEL

Andrew S. Love (argued) and Susan K. Alexander, Robbins
Geller Rudman & Dowd LLP, San Francisco, California;
Kevin K. Green, Frank J. Janecek, Jr., and Christopher
Collins, Robbins Geller Rudman & Dowd LLP, San Diego,
California; Stuart A. Davidson, Mark J. Dearman, and
Christopher C. Martins, Robbins Geller Rudman & Dowd
LLP, Boca Raton, Florida; Sean K. Collins, Boston,
Massachusetts; Michael F. Ghozland, Ghozland Law Firm,
Los Angeles, California; for Plaintiff-Appellant.

Brian D. Boyle (argued) and Meaghan VerGow, O’Melveny
& Myers LLP, Washington, D.C.; Christopher B. Craig, Los
Angeles, California; for Defendants-Appellees UnitedHealth
Group, Inc. and United HealthCare Insurance Company.

Douglas E. Winter, Bryan Cave LLP, Washington, D.C.;
Jeffrey S. Russell and Darci F. Madden, Bryan Cave LLP, St.
Louis, Missouri; for Defendants-Appellees AARP, Inc.,
AARP Services, Inc., and AARP Insurance Plan.
4 FRIEDMAN V. AARP

OPINION

PARKER, Circuit Judge:

Plaintiff Jerald Friedman, a Medicare beneficiary,
purchased private supplemental health insurance through a
group Medigap policy held by Defendant AARP Insurance
Plan (“AARP”), and underwritten and sold by Defendant
UnitedHealth Care Insurance Company (“UnitedHealth”).
Medigap policies offer supplemental private health insurance
to cover costs not covered by Medicare. Friedman filed this
putative class action alleging, in essence, that AARP, through
its arrangement with Medigap, transacts insurance without a
license in violation of the California Insurance Code.
Friedman sought relief pursuant to California’s Unfair
Competition Law and the common law. The district court
granted Defendants’ motion under Rule 12(b)(6) and
dismissed the complaint with prejudice. We reverse.

I

AARP, a not-for-profit corporation formerly known as the
American Association of Retired Persons, is a dominant
figure in the market for Medigap health insurance. See
Vencor Inc. v. Nat’l States Ins. Co., 303 F.3d 1024, 1026 (9th
Cir. 2002) (describing Medigap health insurance).1
Approximately one-third of all Medigap policyholders
nationwide are enrolled in AARP’s program, more than three
times AARP’s closest competitor. AARP does not itself
provide insurance coverage, nor is it licensed to do so.
Rather, it is the group policyholder for Medigap coverage

1
The facts recounted in this section derive principally from the
complaint and its attachment.
 FRIEDMAN V. AARP 5

underwritten and sold by UnitedHealth, the country’s largest
health insurer. In 2011, Friedman purchased UnitedHealth
Medigap coverage through AARP’s group policy.

AARP and UnitedHealth’s Medigap arrangement is
governed by a 1997 joint venture agreement (the “AARP-
United Agreement” or the “Agreement”). The Agreement
requires that individuals wishing to purchase Medigap
coverage from UnitedHealth do so through AARP’s group
policy. The Agreement also requires that AARP administer
key aspects of the program, which involves two principal
tasks.

First, AARP solicits its members’ enrollment in the
Medigap program. An agreement between AARP and its
subsidiary trust, Defendant AARP Insurance Plan (the
“AARP Trust”) contractually obligates AARP to “solicit
member participation in the [Medigap] Plan by direct mail
and otherwise.” ER 299.2 AARP discharges this duty
through television commercials, its website, and other forms
of advertisements. For example, a website owned by
Defendant AARP Services, Inc., a for-profit, wholly-owned
subsidiary of AARP, explained why AARP members should
“get an AARP Medicare Supplement Plan.” ER 276. It
emphasized that: (i) AARP Medicare Supplement Plans are
the “only Medicare Supplement plans endorsed by AARP”;
(ii) the plans are “[i]nsured by UnitedHealthcare Insurance
Company, the insurer serving the most Medicare supplement
enrollees nation wide”; and (iii) there is a “94% Customer
Satisfaction Rate of those surveyed.” ER 276. Many of the
marketing materials owned and controlled by AARP state in

2
References to “ER” are to the Excerpts of Record filed with this
appeal.
6 FRIEDMAN V. AARP

bold font: “This is a solicitation of insurance.” See, e.g.,
ER 270, 272, 276, 278.

Second, AARP collects insurance premiums from
members through the AARP Trust and remits the appropriate
payment to UnitedHealth. The AARP-United Agreement
also allows AARP to invest the collected payments prior to
remittance to UnitedHealth. Significantly, AARP deducts
and retains 4.95% of each dollar paid by UnitedHealth
Medigap enrollees prior to remitting the premiums to
UnitedHealth. Whether this deduction was plausibly alleged
to be an insurance commission is a key issue on this appeal.

The initial version of the AARP-United Agreement
referred to this retained amount as an “allowance.” ER 99.
However, following settlement of a dispute with the Internal
Revenue Service, AARP and UnitedHealth amended their
agreement to provide that the “allowance” would be referred
to as a “royalty.” Compl. ¶ 46, ER 20. Defendants assert that
the 4.95% retention is a permissible royalty payment made by
UnitedHealth in exchange for its use of AARP’s intellectual
property (i.e., its logo) in connection with the Medigap
program. The complaint, however, characterizes this
arrangement quite differently:

[I]n exchange for AARP’s administering of
the insurance program and the marketing,
soliciting, and selling or renewing AARP
Medigap policies on behalf of UnitedHealth,
as well as its collecting and remitting
insurance premiums on behalf of
UnitedHealth, AARP earns a 4.95%
commission, disguised as a “royalty,” on each
policy sold or renewed.
 FRIEDMAN V. AARP 7

Compl. ¶ 51, ER 22. In short, Friedman alleges that the
4.95% retained by AARP is a commission on the sale of
insurance that is charged over and above the actual monthly
premium that UnitedHealth charges for Medigap coverage
which AARP is not entitled to collect because it is not
licensed to transact insurance in California. See Cal. Ins.
Code § 1631 (providing that persons subject to the California
Insurance Code “shall not solicit, negotiate, or effect
contracts of insurance” without a license).

Friedman is not the first to question AARP’s retention of
its fee pursuant to the AARP-United Agreement. At some
point, according to allegations in the complaint, regulators
began to question AARP’s tax-exempt status in light of the
substantial income AARP was earning through this
arrangement. In 2011, the House Committee on Ways and
Means reviewed the circumstances surrounding AARP’s
retention of the 4.95% fee. Although Defendants argue here
that this fee is taken out of the insureds’ premium payments,
Br. of Appellee 7, 32, AARP’s CEO testified to the
Committee that the “royalties have nothing to do with the
premiums of beneficiaries,” and that “[n]one of the money is
taken out of any of the premiums,” Compl. ¶ 63, ER 28–29
(internal quotation marks omitted). Friedman alleges that
AARP has concealed the fact that the 4.95% supposed
“royalty” was an insurance commission collected in addition
to the actual premium charged by UnitedHealth, and was an
amount he otherwise would not have paid.

Friedman filed a putative class action alleging violations
of California’s Unfair Competition Law, Cal. Bus. & Prof.
Code §§ 17200–17210; money had and received; and
conversion. The gravamen of his complaint is that by
soliciting insurance and accepting an insurance commission,
8 FRIEDMAN V. AARP

AARP unlawfully transacts insurance without a license in
violation of the California Insurance Code. This conduct,
according to Friedman, constitutes an unfair business practice
under California law that has caused harm to him and the
purported class.

Defendants moved to dismiss pursuant to Rule 12(b)(6).
The district court granted the motion and dismissed the
complaint with prejudice. The court concluded that “Plaintiff
has not plausibly alleged that AARP acted improperly as an
‘unlicensed insurance agent’ who was paid a ‘commission’
for the ‘sale’ of insurance.” ER 5–6. Rather, it concluded
that AARP’s actions “are entirely consistent with [a]
permissible arrangement.” ER 6. The court rejected
Friedman’s allegation that the 4.95% fee was an improper
commission, concluding that the “payment, labeled a
‘royalty’ by the agreements between AARP and
UnitedHealth, is not a ‘commission’ under the facts alleged.”
ER 8. The court also rejected Friedman’s allegation that
AARP “solicited” insurance, reasoning that none of the
marketing materials identified by Plaintiff “permits an
individual to purchase insurance coverage or submit an
application for insurance.” ER 6. This appeal followed.

II

“We review a district court’s ruling on a motion to
dismiss de novo.” Fed. Trade Comm’n v. AT&T Mobility
LLC, 835 F.3d 993, 997 (9th Cir. 2016). To survive
dismissal, a plaintiff must allege “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). Our review is confined
to the complaint’s “face” because, “[a]s a general rule, we
may not consider any material beyond the pleadings in ruling
 FRIEDMAN V. AARP 9

on a Rule 12(b)(6) motion.” United States v. Corinthian
Colls., 655 F.3d 984, 998 (9th Cir. 2011) (internal quotation
marks omitted). However, “[c]ertain written instruments
attached to pleadings may be considered part of the
pleading,” and “[e]ven if a document is not attached to a
complaint, it may be incorporated by reference into a
complaint if the plaintiff refers extensively to the document
or the document forms the basis of the plaintiff’s claim.”
United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
A court must accept “all factual allegations in the complaint
as true and construe the pleadings in the light most favorable
to the nonmoving party.” Rowe v. Educ. Credit Mgmt. Corp.,
559 F.3d 1028, 1029–30 (9th Cir. 2009) (internal quotation
marks omitted). Finally, “[a]s a federal court sitting in
diversity, we must apply the substantive law of California, as
interpreted by the California Supreme Court.” Hinojos v.
Kohl’s Corp., 718 F.3d 1098, 1103 (9th Cir. 2013) (internal
quotation marks omitted).

III

Friedman’s principal contention is that AARP’s Medigap
arrangement violates California’s Unfair Competition Law
(“UCL”). See Cal. Bus. & Prof. Code §§ 17200–17210. The
UCL broadly prohibits “unfair competition,” defined as “any
unlawful, unfair or fraudulent business act or practice.” Cal.
Bus. & Prof. Code § 17200. Because the statute is written in
the disjunctive, it is violated if a defendant violates any of the
unlawful, unfair or fraudulent prongs. Davis v. HSBC Bank
Nev., N.A., 691 F.3d 1152, 1168 (9th Cir. 2012). The
California Supreme Court has emphasized that the “UCL’s
‘scope is broad,’ and its coverage is ‘sweeping.’” People ex
rel. Harris v. Pac Anchor Transp., Inc., 329 P.3d 180, 188
10 FRIEDMAN V. AARP

(Cal. 2014) (quoting Cel-Tech Commc’ns, Inc. v. L.A.
Cellular Tel. Co., 973 P.2d 527, 560 (Cal.1999)).

A

With respect to the unlawful prong of section 17200, it is
clear that “[v]irtually any state, federal, or local law can serve
as the predicate.” See People ex rel. Lockyer v. Fremont Life
Ins. Co., 128 Cal. Rptr. 2d 463, 469 (Ct. App. 2002) (internal
quotation marks omitted). Friedman’s allegations focus
primarily on purported violations by AARP of the California
Insurance Code, a UCL predicate, see Stevens v. Superior
Court, 89 Cal. Rptr. 2d 370, 379 (Ct. App. 1999). Friedman
relies most specifically on section 1631, which states that:

Unless exempt by the provisions of this
article, a person shall not solicit, negotiate, or
effect contracts of insurance, or act in any of
the capacities defined in Article 1
(commencing with Section 1621) unless the
person holds a valid license from the
commissioner authorizing the person to act in
that capacity.

Cal. Ins Code. § 1631. Section 1622, referenced in section
1631, defines a “life licensee” as “a person authorized to act
on behalf of a life insurer or a disability insurer to transact”
insurance. Cal. Ins Code. § 1622. Further, section 1633
provides that “[a]ny person who transacts insurance without
a valid license so to act is guilty of a misdemeanor.” Cal. Ins
Code. § 1633; see also Stevens, 89 Cal. Rptr. 2d at 377 n.9
(“[T]ransacting insurance without a license [is not] a ‘mere
technical violation’ as defendants contend; it is unlawful.
 FRIEDMAN V. AARP 11

(§ 1633.)”).3 The Insurance Code defines the term “transact”
to include “solicitation,” “negotiations preliminary to
execution,” “execution of a contract of insurance,” or
“transaction of matters subsequent to execution of the
contract and arising out of it.” Cal. Ins. Code § 35.

Friedman alleges—and Defendants do not dispute—that
AARP is not licensed in California to “solicit, negotiate, or
effect contracts of insurance,” nor is it licensed to “transact”
insurance. At issue therefore is whether Friedman has
adequately pled that AARP has engaged in any of those listed
activities.4 We conclude that he has. In short, Friedman has
adequately pled that AARP both “transacts” and “solicits”
insurance without a license in violation of the California
Insurance Code.

First, the complaint alleges that AARP “transacts”
insurance by charging a “commission” to its members who
sign up for UnitedHealth Medigap coverage.5 Although the

3
See also Multifamily Captive Grp., LLC v. Assurance Risk Manager,
Inc., 578 F. Supp. 2d 1242, 1247 n.10 (E.D. Cal. 2008).
4
Defendants argue AARP could have not “transact[ed]” insurance as
envisioned in Cal. Ins. Code § 1622 because AARP is not UnitedHealth’s
“agent” or “ostensible agent,” as respectively defined in sections 2299 and
2300 of the California Civil Code. Br. of Appellees 19–21. However,
Cal. Ins. Code § 1622 does not use the term “agency,” ostensible or
otherwise. In any event, Cal. Ins. Code § 1633 broadly proscribes all
unlicensed transactions of insurance.
5
The acceptance of an insurance commission constitutes
“transacting” insurance. The Insurance Code expressly excludes from
activities exempt from the licensing requirements those for which a
commission is paid. Cal. Ins. Code § 1635; see also id. § 1634(b), (g), (h)
(exempting certain persons from licensure provided they are not paid
12 FRIEDMAN V. AARP

Insurance Code does not define “commission,” California’s
Labor Code defines “commission wages” as “compensation
paid to any person for services rendered in the sale of such
employer’s property or services and based proportionately
upon the amount of value thereof.” Cal. Lab. Code § 204.1
(addressing commission wages in context of employees at car
dealerships); see also Wayne v. Staples, Inc., 37 Cal. Rptr. 3d
544, 554 (Ct. App. 2006) (relying on Labor Code’s definition
of “commission wages” in assessing whether a fee retained in
connection with the sale of an insurance product constitutes
a commission for purposes of the Insurance Code). If, as
Friedman alleges, the 4.95% fee is an insurance
“commission” and not a royalty, its retention by AARP could
plausibly violate California law.

Defendants argue that the fee AARP receives does not
meet that definition of “commission” because UnitedHealth’s
payment to AARP “is calculated as a percentage of all
premiums paid in connection with the program, regardless of
their source.” Br. of Appellees 6, 28. While seemingly true,
given Friedman’s allegations, we are not persuaded that the
method of calculation, in and of itself, places the
arrangements between AARP and UnitedHealth outside the
definition of “commission.” Significantly, Friedman alleged
that “[a]ny consumer who wants to purchase Medigap
coverage from UnitedHealth must purchase the AARP
Medigap plan.” Compl. ¶ 37, ER 18. Therefore, every
enrollee in UnitedHealth’s Medigap program signed up for
the program through AARP and remits their monthly
payments to AARP (specifically, the AARP Trust).
Accordingly, we see no “source” other than through AARP

commissions). Clearly, the legislature intended those accepting insurance
commissions to be licensed.
 FRIEDMAN V. AARP 13

for the premiums paid to UnitedHealth for Medigap coverage.
At this early stage of litigation, it appears that, in practice, the
fee received by AARP is directly tied to the portion of
policies “sold” by AARP, and is, in effect, a “percent of the
price of the product,” Wayne, 37 Cal. Rptr. 3d at 553.
Regardless of the nominal form of the arrangement called for
by the AARP-United Agreement, the complaint alleges that
AARP receives a 4.95% fee for every member that enrolls in
UnitedHealth’s Medigap program. At the motion to dismiss
stage, we conclude that Friedman has plausibly alleged this
payment to be a “commission.”

The complaint contains other allegations lending further
support to the contention that AARP’s fee is an insurance
commission rather than a royalty. As previously noted,
AARP’s CEO testified to Congress that “royalties have
nothing to do with the premiums of beneficiaries,” and that
“[n]one of the money is taken out of any of the premiums,”
Compl. ¶ 63, ER 27–28, and AARP recharacterized the fee as
a “royalty” (rather than an “allowance”) following settlement
of a dispute with the IRS. Compl. ¶¶ 45–46, ER 20–21.
Additionally, according to the complaint, other associations
with insurance structures similar to AARP’s, such as the
automobile club AAA, acquire a license to act as an insurance
agent, Compl. ¶ 9 & n.1, ER 14. In sum, we conclude that
Friedman has met the not especially onerous burden imposed
at the pleading stage of alleging facts making it plausible that
AARP transacts insurance by collecting commissions from its
members who purchase UnitedHealth’s Medigap policy.

Second, Friedman also adequately alleged that AARP
“solicits” insurance in violation of the Insurance Code. Most
significantly, AARP’s marketing materials, which AARP
14 FRIEDMAN V. AARP

owns and controls,6 expressly state in bold font: “This is a
solicitation of insurance.”7 Next, the AARP-United
Agreement itself envisions that certain AARP member
communications may constitute “solicitation materials.” See
supra note 6. Additionally, the AARP Trust’s governing
document contractually obligates AARP to “solicit” its
members’ participation in the UnitedHealth Medigap
program. Finally, AARP’s marketing materials contain
language that a reasonable observer could plausibly interpret
as soliciting his or her business. For example, AARP’s
marketing documents explain why members should “get an
AARP Medicare Supplement Plan,” and then list supporting
reasons. ER 276. AARP’s website also allows consumers to
“View Plans and Pricing” and call a toll-free number to speak
to an insurance agent and “receive complete information
including benefits, costs, eligibility requirements, exclusions
and limitations.” ER 276. In light of AARP’s direct financial
incentive in securing additional enrollees in UnitedHealth’s
Medigap program, we have little difficulty in concluding that
these representations support plausible allegations of
solicitation.

6
Section 7.2.1 of the AARP-United Agreement states as follows:
“All communications to AARP members pertaining to the [Medigap
program], including without limitation scripts, solicitation materials and
other written materials mailed on behalf of AARP to any members, shall
be the property of AARP[.] . . . United acknowledges that it has no
proprietary or ownership rights in any of such materials . . .” ER 109.
7
Defendants’ response that they are required to include this language
pursuant to California law seems to us to in fact be an admission that
AARP solicits insurance. See Cal. Ins. Code § 10192.20(b)(3) (requiring
the solicitation disclosure if “a purpose of marketing is the solicitation of
insurance”).
 FRIEDMAN V. AARP 15

Despite the foregoing, the district court concluded that the
complaint failed to adequately allege that AARP “solicits”
insurance. The court’s primary rationale was that “none of
those websites permits an individual to purchase insurance
coverage or submit an application for insurance.” ER 6.8 We
are not persuaded, however, that the ability (or lack of ability)
to directly purchase or apply for insurance is dispositive.
While the California Insurance Code does not define
“solicitation,” various provisions of the Code suggest that the
California legislature intended “solicitation” to encompass
both requests for “applications for [insurance] contracts,” Cal.
Ins. Code § 1611, and marketing if the “purpose of the
method of marketing is the solicitation of insurance” by
putting consumers in contact with an insurance agency or
company, Cal. Ins. Code § 10192.20(b)(3). Because the UCL
sweeps broadly, People ex rel. Harris, 329 P.3d at 188, we
decline to adopt the narrow construction of “solicitation” used
by the district court. Even if consumers cannot directly apply
for or purchase insurance through AARP, Friedman has
plausibly alleged that AARP’s marketing materials are
designed to lead its members to contact UnitedHealth to
consummate sales of insurance.

Next, the district court found it significant that the AARP
marketing materials state that “[n]either AARP nor its
affiliates is the insurer” and that “AARP and its affiliates are
not insurance agencies or carriers.” ER 6–7 (internal
quotation marks omitted). These assertions by AARP are
hardly dispositive, especially when they are made in concert
with contrary assertions in marketing materials that “This is

8
This conclusion was based on documents Defendants attached to
their motion to dismiss, ER 267–79.
16 FRIEDMAN V. AARP

a solicitation of insurance.”9 An unlicensed entity violates
sections 1631 and 1633 when it, in fact, solicits insurance,
irrespective of whether it self-reports as an “agent” or an
“insurer.” Section 1631 is expansive, providing that “a[n]
[unlicensed] person shall not solicit, negotiate, or effect
contracts of insurance, or act in any of the capacities defined
in Article 1 [defining ‘insurance agent’].” Cal. Ins. Code
§ 1631 (emphases added). Moreover, as we have noted,
section 1633 prohibits “transacting” insurance without regard
to agency status.10

In light of AARP’s self-described “solicitation[s] of
insurance,” as well as its contractual obligation to “solicit”
membership into the UnitedHealth Medigap plan, Plaintiff
stated a plausible claim at the motion to dismiss stage that
AARP “solicits” insurance without a license, and, as a
consequence, committed an unlawful act in violation of the
UCL.

9
Moreover, even if one could not “solicit” without being an agent or
an insurer, the statements on Defendants’ marketing materials would
conflict. At this stage of the litigation, the district court was required to
credit Plaintiff’s interpretation of those statements. See Rowe, 559 F.3d
at 1029–30.
10
The district court also concluded that AARP’s actions were
permissible in part because “a group policyholder, such as AARP, is
entitled to ‘offer[] insurance’ to its members” pursuant to section
10270.5(a)(3) of the Insurance Code. ER 7. However, this ignores
Friedman’s argument, grounded in the complaint, that “AARP went
several steps further than the passive role played by group policyholders
under the Insurance Code.” Br. of Appellant 12.
 FRIEDMAN V. AARP 17

B

Having found that Friedman adequately alleged that
Defendants violated the UCL’s “unlawful” prong, we also
conclude Friedman adequately alleged that Defendants
violated the “fraudulent” and “unfair” prongs of the UCL. To
state a claim under either prong, a plaintiff’s “burden of proof
is modest: the representative plaintiff must show that
members of the public are likely to be deceived by the
practice.” Prata v. Superior Court, 111 Cal. Rptr. 2d 296,
308 (Ct. App. 2001). We assess likelihood of deception
under a “reasonable consumer standard.” Reid v. Johnson &
Johnson, 780 F.3d 952, 958 (9th Cir. 2015). We recently
held that this inquiry “raises questions of fact that are
appropriate for resolution on a motion to dismiss only in ‘rare
situation[s].’” Id. (quoting Williams v. Gerber Prods. Co.,
552 F.3d 934, 939 (9th Cir. 2008)). Further, to establish a
fraud claim under the UCL, a plaintiff must demonstrate
actual reliance. In re Tobacco II Cases, 207 P.2d 20, 39 (Cal.
2009). However, “actual reliance [for purposes of a UCL
claim] . . . is inferred from the misrepresentation of a material
fact.” Chapman v. Skype, Inc.,162 Cal. Rptr. 3d 864, 874 (Ct.
App. 2013). Finally, the California Supreme Court has
emphasized that a “misrepresentation is judged to be
‘material’ if a reasonable man would attach importance to its
existence or nonexistence in determining his choice of action
in the transaction in question, and as such materiality is
generally a question of fact.” In re Tobacco II Cases,
207 P.2d at 39 (internal citation and quotation marks
omitted).

Friedman has plausibly alleged that members of the
public are likely to be deceived into paying AARP’s
additional 4.95% fee because AARP collects and labels the
18 FRIEDMAN V. AARP

fee as a “royalty” rather than what Friedman alleges it
actually is—a “commission” collected on top of the premium.
At the motion to dismiss stage, these allegations are adequate
to establish material misrepresentations supporting Plaintiff’s
claims.

Defendants contend that Friedman failed to allege
deception. We disagree. Friedman alleged that AARP
deceives its members into believing that members’ monthly
payments are for AARP’s regulator-approved premiums and
administrative expenses but actually include the additional
commission. As support, Friedman points to an “AARP
Medigap disclaimer” that states: “These premiums are used
to pay expenses incurred by the Trust in connection with the
insurance programs and to pay the insurance company for
your insurance coverage.” Compl. ¶ 67; ER 29–30 (internal
quotation marks omitted). Accordingly, he contends, AARP
misleadingly told its members that their payment only
covered AARP’s expenses and the premium for
UnitedHealth’s Medigap coverage, but in reality, the
payments include an imbedded commission which was not an
expense payment. We agree that these allegations plausibly
allege deception. Defendants also disregard Friedman’s
allegation that it was deceptive for AARP to characterize its
fee as a royalty in the first place. Compl. ¶ 8, ER 13
(“[c]alling the commission payment a ‘royalty’ is merely a
fiction created by Defendants to further their illegal
scheme”).

Next, Defendants argue that the ultimate rate Friedman
was charged was precisely in line with rates approved by the
California Insurance Code, and therefore they cannot be
deceptive. In fact, they argue, the rate was expressly
authorized by California regulators and Defendants were
 FRIEDMAN V. AARP 19

prohibited from deviating from that rate. This argument fails
because it disregards Friedman’s numerous allegations that
the 4.95% fee was, in fact, charged on top of any regulator-
approved premium. And, this allegation is supported with
reference to language in the AARP-United Agreement.
Specifically, the Agreement defines “SHIP GROSS
PREMIUMS” for purposes of the AARP Medigap Plan, as
“the amount of Member Contributions minus the AARP
allowance.” ER 68 (emphasis added); see also ER 99
(describing the “AARP allowance” as “an allowance for
AARP’s sponsorship of the SHIP and the license to use the
AARP Marks in connection therewith”). That language
makes it seem quite plausible that, as Friedman alleged, the
premium that AARP charges does not include the AARP
allowance. Friedman’s allegation is further supported by
testimony to Congress from AARP’s CEO that “royalties
have nothing to do with the premiums of the beneficiaries,”
and that “[a]ll of the money that we have that comes out of
the trust in interest goes to our mission. None of the money
is taken out of any of the premiums.” Compl. ¶63, ER 28–29.

Next, Defendants argue Friedman failed to sufficiently
allege actual reliance. However, as discussed, “actual
reliance . . . is inferred from the misrepresentation of a
material fact.” Chapman, 162 Cal. Rptr. 3d at 874.
Accordingly, to have alleged reliance on Defendants’
misrepresentation of material facts, Friedman only needed
establish it to be plausible that a “reasonable man would
attach importance to [their] existence or nonexistence in
determining his choice of action in the transaction in
question.” In re Tobacco II Cases, 207 P.3d at 39; see also
id. (whether a misrepresentation is sufficiently material to
allow for an inference of reliance “is generally a question of
fact unless the fact misrepresented is so obviously
20 FRIEDMAN V. AARP

unimportant that the jury could not reasonably find that a
reasonable man would have been influenced by it”).

Friedman alleges that the misrepresentations he
catalogued in his complaint concerning the 4.95% fee were
material because they induced him to purchase Medigap
through AARP rather than from other insurers who “do not
secretly charge unlawful insurance agent commissions to
consumers.” Compl. ¶ 77, ER 31. We think that it is not, as
a matter of law, an “obviously unimportant” consideration for
a reasonable purchaser of insurance to know that an
undisclosed fee charged to a group insurance policyholder
would be collected in addition to—rather than from—the
actual cost of the insurance. See In re Tobacco II Cases,
207 P.3d at 39. For these reasons we conclude that
Friedman’s complaint should not have been dismissed.

As a final matter we note that one of Defendants’
principal contentions below was that Friedman’s claim is
barred by the “filed-rate” doctrine, under which “rates duly
adopted by a regulatory agency are not subject to collateral
attack in court.” MacKay v. Superior Court, 15 Cal. Rptr. 3d
893, 910 (Ct. App. 2010). Because the district court
concluded that the complaint failed to state a claim it saw no
need to reach this issue. ER 4–5 n.2. Moreover, neither party
addressed the doctrine in its appellate briefing.

In light of our conclusion that the complaint should not
have been dismissed, the “filed-rate” issue reemerges. Our
general rule is that we do not consider an issue not passed
upon below. Dodd v. Hood River Cty., 59 F.3d 852, 863 (9th
Cir. 1995). We do not think this case calls for deviation from
that rule and we conclude that the proper course is to have the
district court address the issue in the first instance.
 FRIEDMAN V. AARP 21

CONCLUSION

We REVERSE and REMAND for further proceedings
consistent with this opinion.