Judge: Anne Richardson, Case: 22STCV02147, Date: 2023-03-21 Tentative Ruling

Case Number: 22STCV02147    Hearing Date: March 21, 2023    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Plaintiff Mission City Community Network, Inc. (“MCCN”) sues Defendant State of California Department of Health Care Services (“DHCS”) based on DHCS’s failure to compensate MCCN $9.9 million for services rendered by MCCN to California Medi-Cal beneficiaries during an 18-month period in which MCCN’s status as a Medi-Cal provider had been suspended by DHCS pursuant to Welfare and Institutions Code section 14043.36, subdivision (a)—precluding a provider under investigation for fraud and abuse from being reimbursed for services provided to Medi-Cal beneficiaries while the investigation for fraud or abuse is pending—due to, in part, a California Department of Justice (“Cal DOJ”) investigation into MCCN for fraudulent billing.

MCCN’s operative Second Amended Complaint (“SAC”) alleges three causes of action against DHCS based on these allegations: (1) Violation of Section 1902(bb) of the Social Security Act, 42 U.S.C. Section 1396a(bb) and/or 42 U.S.C. section 254b, subdivision (k)(3) for failure to compensate MCCN $9.9 million for services rendered to California Medi-Cal beneficiaries during MCCN’s 18-month suspension; (2) Negligence based on DHCS’s 18-month investigation and suspension of MCCN’s National Provider Identifier numbers—needed for billing purposes—based, in part, on DHCS’s reliance on a separate Cal DOJ investigation into fraudulent billing practices by MCCN, where the Cal DOJ investigation was based on search warrants supported by an affidavit relying on deposition testimony drawn from a federal False Claims Act (“FCA”) action against MCCN that had been resolved in MCCN’s favor a year prior to the drafting of the affidavit on which the Cal DOJ search warrant against MCCN was issued; and (3) Unjust Enrichment based on costs saved by the State of California based on DHCS’s refusal to compensate MCCN $9.9 million for services rendered to California Medi-Cal beneficiaries during MCCN’s 18-month suspension.

Now before the Court is Defendant DHCS’s January 10, 2023 Demurrer to Second Amended Complaint, which is opposed by Plaintiff MCCN.

Background

Because the factual allegations supporting this Second Amended Complaint are essentially identical to the original Complaint and subsequent First Amended Complaint, the Court refers to the Second Amended Complaint, as well as the Court’s June 20, 2022 judgment on the pleadings minutes and November 20, 2022 demurrer minutes for an in-depth summary of the allegations advanced in all three pleadings.

The Court notes that the Complaint and First Amended Complaint alleged the same three causes of action as the Second Amended Complaint and were successfully challenged through a motion for judgment on the pleadings against the Complaint and demurrer to the First Amended Complaint, rulings dated June 20, 2022 and November 20, 2022 respectively.

Now before the Court is Defendant DHCS’s January 10, 2023 Demurrer to Second Amended Complaint. Plaintiff MCCN opposed the demurrer on February 8, 2023, with DHCS filing a reply to the opposition on March 14, 2023.

Demurrer: SUSTAINED, in Full, With Leave to Amend.

Legal Standard

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747; see Code Civ. Proc., § 430.10, subd. (e).) This device can be used only to challenge defects that appear on the face of the pleading under attack or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “To survive a [general] demurrer, the complaint need only allege facts sufficient to state a cause of action; each evidentiary fact that might eventually form part of the plaintiff’s proof need not be alleged.” (C.A. v. William S. Hart Union High School Dist. (2012) 53 Cal.4th 861, 872.) In testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-67.) A demurrer, however, “does not admit contentions, deductions or conclusions of fact or law.” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) When considering demurrers, courts read the allegations liberally and in context. (Taylor v. City of Los Angeles Dept. of Water and Power (2006) 144 Cal.App.4th 1216, 1228, disapproved on other grounds, Jones v. Lodge at Torrey Pines Partnership (2008) 42 Cal.4th 1158, 1162.) The face of the complaint includes exhibits attached to the complaint. (Frantz v. Blackwell (1987) 189 Cal.App.3d 91, 94.) If facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. (Holland v. Morse Diesel Intern., Inc. (2001) 86 Cal.App.4th 1443, 1447.)

First Cause of Action, Violation of Federal Payment Rights: SUSTAINED, With Leave to Amend.

The SAC’s first cause of action is pleaded on the grounds that Defendant DHCS’s refusal to compensate Plaintiff MCCN in the amount of $9.9 million for services rendered to California Medi-Cal beneficiaries during MCCN’s 18-month suspension violates Section 1902(bb) of the Social Security Act, which provides a structure by which States are required to pay providers such as MCCN for services rendered to low-income individuals such as the Medi-Cal beneficiaries that MCCN treated during its 18-month suspension. (See SAC, ¶ 101.)

The claim is also grounded in allegations that MCCN could not turn Medi-Cal patients away during its 18-month suspension pursuant to 42 U.S.C. section 254b, subdivision (k)(3)(G)(iii), because those patients were enrolled in Medi-Cal, and that, as a ‘Section 330 grantee,’ MCCN also is required to make every reasonable effort to collect reimbursement for its costs in providing health services to patients enrolled in a state Medicaid program, consistent with section 330(k) of the Public Health Service Act, 42 U.S.C. section 254b, subdivision (k)(3). (See SAC, ¶¶ 101-02.)

Last, the claim also alleges that DHCS knew, or should have known, that even if MCCN had decided to terminate all sites and wind down its Section 330 grant immediately upon receipt of DHCS’ suspension letter, that process could take many months, and MCCN would be required to keep its doors open and serve the community until a new U.S. Department of Health and Human Services ( “U.S. DHHS”), Health Resources and Services Administration (“HRSA”) HRSA grant was awarded to a different health center, thus entitling MCCN to some measure of damages. (See SAC, ¶¶ 107, 110.)

The Court notes that:

(1) DHCS is authorized by statute to temporarily suspend a Medi-Cal provider if it is discovered that a provider is under investigation by the Department or any state, local, or federal government law enforcement agency for fraud or abuse (Welf. & Inst. Code, § 14043.36, subd. (a));

(2) Section 1902(bb) of the Social Security Act, 42 United States Code section 1396(a)(bb), is a general federal statutory provision for the payment for services to “Federally-qualified health centers and rural health clinics”—such as MCCN is alleged to be in the SAC—but Title 42 United States Code section 1396(a)(bb) is silent on the issue of whether a federally-qualified health center (FHQC) suspended from the Medicaid program by its State is entitled to payment of services rendered to Medicaid patients during its suspension; and

(3) Pursuant to the pleadings, MCCN has actively participated in California’s Medicaid program, Medi-Cal, for more than 30 years, and as a Section 330 grantee—i.e., grantee of base funds provided by the federal government to the Medicare program—MCCN is generally required to provide a full spectrum of preventive and primary health, dental, and behavioral services to individuals living and working in medically underserved areas, with other key conditions of funding including requirements that (1) a health center see every patient that walks through its doors regardless of the ability to pay for the services provided (42 U.S.C. § 254b(k)(3)(G)(iii)), (2) the care provided is culturally and linguistically appropriate to the population served (42 U.S.C. § 254b(j)), and (3) a health center makes every reasonable effort to collect payments from Medicaid, Medicare and other third-party payors without the application of discounts (42 U.S.C. § 254b(k)(3)) (SAC, ¶¶ 3, 11).

On demurrer, Defendant DHCS argues—by citing to this Court’s June 20, 2022 ruling—that the first cause of action fails as pleaded because:

(1) “Mission City fail[s] to plead the existence of any ‘case law, statutory language, legislative history, or persuasive construction of all three discussing how Section 1902(bb) permits a newly-renewed Medi-Cal provider, previously suspended pending a fraud investigation, to recover monies for services rendered to Medicaid beneficiaries during the provider’s suspension period and at which time [DHCS] had specifically directed the provider not to engage in providing services or billing for the relevant Medicaid program’” (Demurrer, 12:18-23); and

(2) “Mission City … failed to ‘point to . . . authority indicating that a suspended Medi-Cal provider’s status as a Section 330 grantee requires that the provider maintain its door open and that this Congressional intent is somehow tied with Section 1902(bb) of the Social Security Act, superseding any State suspension of the provider’s ability to participate in the State’s Medicaid program” (Demurrer, 12:24-28).

DHCS also argues that:

(1) The SAC’s pleadings that the temporary suspension caused MCCN to wind down its operations “are irrelevant, speculative, and meritless” where “there is no allegation showing that Mission City was required or compelled to wind down its operations because of the temporary suspension, especially given the fact that the suspension was only temporary, for the duration of the investigation for fraud and abuse” (Demurrer, 13:18-23);

(2) The “requirement by Mission City to comply with its federal grant terms and conditions imposed by HRSA would not preempt or even conflict with the Department’s statutory authority to enforce the Medi-Cal statute authorizing the temporary suspension” (Demurrer, 13:22-24); and

(3) “[T]he allegations of the wind-down scenario, in what seems to be an attempt to preempt Medi-Cal law, fail because they are based solely on speculation and lack foundation; they allege what could have potentially occurred if Mission City had to wind down its operations” (Demurrer, 13:24-27).

In opposition, MCCN argues that “DHCS’ Demurrer cannot stand as it errs by (i) continuing to ignore the intertwined nature of federal and state law, despite the SAC’s express allegations underscoring how Section 330 requirements for federal grantees are explicitly tied to federal payment requirements under Medicaid via the FQHC designation; and (ii) summarily dismissing MCCN’s new allegations relating to the HRSA-mandated ‘wind down’ timing process implemented when an FQHC decides to shut down, despite the Court’s recognition of the importance of this timing issue as it relates to MCCN’s claims for monetary recovery.” (Opp’n, 7:25-8:3.)

More specifically, MCCN argues that:

(1) “California law has incorporated Section 330 of the Public Health Service Act, which obligates FQHCs like MCCN to ‘make every reasonable effort to collect appropriate reimbursement for its costs in providing health services to persons who are entitled to insurance benefits under … a State plan approved under title XIX of [the Social Security] … Act” at “42 U.S.C. § 254(b)(k)(3)(F) ([see] SAC ¶¶ 17–20, 23–27, 30–35)” (Opp’n, 8:13-17);

(2) “[T]he California Court of Appeal has reinforced the reach of § 1396a(bb), holding that DHCS ‘must pay 100 percent of [an FQHC’s] costs for . . . services’ ([see] Tulare Pediatric Health Care Ctr. v. Dept. of Health Care Services (2019) 41 Cal.App.5th 163, 171[])” (Opp’n, 8:23-25);

(3) “Relating to statutory language, the SAC alleges that in the absence of any provision in state or federal law that addresses unpaid claims at an FQHC arising during a period of suspension, the specific language of Section 1902(bb) requiring payment for services must control[] (SAC, ¶¶ 38, 101)” (Opp’n, 9:13-15);

(4) “DHCS does not contend (nor could it credibly do so) that a DHCS suspension negates MCCN’s federal statutory obligations” (Opp’n, 9:22-23);

(5) “[U]pon receiving the suspension letter, MCCN had three options: (1) continue providing services to Medi-Cal recipients for the duration of the suspension, (2) continue providing services to Medi-Cal recipients while seeking to terminate the grant, or (3) refuse to provide services to Medi-Cal patients, and thus commit tens of thousands of violations of federal law (see SAC ¶ 79 (noting that MCCN provided more than 44,000 Medi-Cal encounters during the suspension)” where “DHCS suggests that MCCN should have chosen Option 3” (Opp’n, 9:23-10:4);

(6) “If a[n] FQHC needs to scale back services, it first must receive approval from HRSA—an FQHC cannot simply cease to provide services if a state Medicaid agency suspends payment and participation in the state program[] ([s]ee SAC ¶ 30[])” where, “taken together with the “SAC[‘s] [allegations that] HRSA[] threat[ened] to terminate MCCN’s Section 330 grant if the suspension could not be resolved and … only withdrew the conditions that designated MCCN as out of compliance after DHCS lifted [its] suspension[] (SAC ¶¶ 85-92[]),” “these allegations sufficiently underscore the statutory authority indicating that a suspended Medi-Cal provider’s status as a Section 330 grantee requires that the provider still offer care to patients” during a wind down process in spite of any State suspension prohibiting MCCN from providing such services to Medi-Cal patients” (Opp’n, 10:15-22);

(7) “[A]ny attempt to terminate a Section 330 grant before the end of the grant period requires the grantee to follow a detailed process, and MCCN’s grant could not be terminated instantaneously upon receipt of the suspension letter” (Opp’n, 11:14-16); and

(8) “The issue presented by the first cause of action is whether Section 1902(bb) requires DHCS to pay for the services rendered to Medi-Cal recipients during the suspension (or some portion thereof) after the suspension was lifted without any findings that MCCN had committed fraud” (Opp’n, 11:25-27).

In reply, DHCS argues that:

(1) “Welfare and Institutions Code section 14043.36, subdivision (a) precludes a provider under investigation for fraud and abuse from being reimbursed for services provided to Medi-Cal beneficiaries while the investigation for fraud or abuse is pending” and “Mission City is unable to cite any legal authority that preempts the Department’s authority to temporarily suspend it from participating in the Medi-Cal program as a provider and to not reimburse for services purportedly provided the suspension” (Reply, 3:23-4:6);

(2) “Mission City continues to seek reimbursement from the Department on the ground that it is entitled to Medi-Cal reimbursement under the general payment provision ‘Section 1902(bb) of the Social Security Act[]’ (SAC, ¶ 5; Opp. to Demurrer, at p. 8[])” where “there can be no dispute that Section 1902(bb) of the Social Security Act, 42 United States Code section 1396(a)(bb) is merely a general federal statutory provision for the payment for services to ‘Federally-qualified health centers and rural health clinics[] (42 U.S.C. § 1396(a)(bb)[])’” and that “[t]his general payment provision, undeniably, bears no significance to the issue at hand, which centers on claimed payment for alleged Medi-Cal services performed during the temporary suspension period” because “Title 42 United States Code section 1396(a)(bb) is silent on that issue” (Reply, 4:7-18);

(3) “Mission City’s reliance on Tulare Pediatric Health Care Center v. State Dept. of Health Care Services (2019) 41 Cal.App.5th 163 is entirely misplaced[] (Opp. to Demurrer, at pp. 8-9[])” where “Tulare pertains to the proper calculation of reimbursement amounts” and “has no bearing whatsoever on the question of whether a provider may receive compensation for services it provided while it was temporarily suspended” (Reply, 4:19-23);

(4) “Mission City’s attempted reliance on wind-down requirements is an attempt to obfuscate the issues before the Court[] (See Opp. to Demurrer, at p. 10[])” because “Mission City cites no authority in support of its proposition that it was required or compelled to wind down its operations because of the temporary suspension, especially since the suspension was only temporary, for the duration of the investigation” and because “any requirement that Mission City must comply with its federal grant terms and conditions including the ‘wind down’ process does not preempt or even conflict with the Department’s statutory authority to enforce the Medi-Cal statute authorizing the temporary suspension and non-payment for Medi-Cal services provided during the shutdown” where DHCS “cannot provide special treatment to certain providers because of a funding grant they have with the federal government” given such “a scenario would render the Department’s oversight ability ineffective” (Reply, 5:5-15);

(5) “Mission City’s allegations regarding the potential wind-down scenario are insufficient do not help [sic] the SAC survive the demurrer because they are based solely on speculation and lack foundation” where, in the pleadings, “Mission City was never ordered to wind down, or even took any steps to wind down because of the temporary suspension,” and where, “[e]ven if it did, Mission City would not be entitled to special treatment superseding Welfare and Institutions Code section 14043.36,” for which reason, MCCN “only speculate[s] as to what could have or might have occurred[] (SAC, ¶ 35[])” (Reply, 5:16-22); and

(6) “Adopting Mission City’s interpretation would defeat the purpose of the suspension statute”—i.e., Welfare & Institutions Code section 14043.36, subdivision (a)—because “[t]o hold otherwise and allow Mission’s City’s first cause of action to proceed would render meaningless any temporary suspension imposed on a federally-qualified health center, as any such center under investigation for Medi-Cal fraud and abuse would be able to continue the challenged conduct during the pendency of any investigation, potentially resulting in the loss of millions of dollars of public funds intended to provide care for eligible persons” (Reply, 5:23-28).

The Court agrees with DHCS.

The fundamental question on demurrer to the first cause of action is whether, as pleaded, the SAC properly alleges that Section 1902(bb) of the Social Security Act, 42 U.S.C. Section 1396a(bb), in combination with, or through section 330(k) of the Public Health Service Act, 42 U.S.C. section 254b alone, preempts the State of California’s statutory power to temporarily suspend a Medi-Cal provider, including its ability to collect compensation from the Medi-Cal program, if it is discovered that a provider is under investigation by the Department or any state, local, or federal government law enforcement agency for fraud or abuse, as prescribed in Welfare & Institutions Code section 14043.36, subdivision (a), such that federal preemption entitles MCCN to collect the $9.9 million associated with costs incurred providing services to Medi-Cal recipients during MCCN’s 18-month suspension.

The Court finds plaintiff has failed to show that, individually or in combination, Section 1902(bb) of the Social Security Act, 42 U.S.C. Section 1396a(bb) or section 330(k) of the Public Health Service Act, 42 U.S.C. section 254b, preempt(s) the State of California’s statutory power to temporarily suspend a Medi-Cal provider, including the ability to collect compensation from the Medi-Cal program, pursuant to Welfare & Institutions Code section 14043.36, subdivision (a).

The reason for this conclusion is simple: If the Court accepts MCCN’s argument that “in the absence of any provision in state or federal law that addresses unpaid claims at an FQHC arising during a period of suspension, the specific language of Section 1902(bb) requiring payment for services must control[] (SAC ¶¶ 38, 101[])” (Opp’n, 9:13-16), then the State of California’s enforcement powers pursuant to Welfare & Institutions Code section 14043.36, subdivision (a) would be rendered meaningless. For this result to occur, even at the pleadings stage, the Court needs MCCN to show the Court how its allegations against DHCS show that Section 1902(bb) preempts Welfare & Institutions Code section 14043.36, subdivision (a).

The Court makes the same conclusion for MCCN’s argument that its status as a Section 330 grantee preempts California’s enforcement powers pursuant to Welfare & Institutions Code section 14043.36, subdivision (a). (See SAC, ¶¶ 102-107.)

Preemption is foremost a question of congressional intent, asking whether Congress intended, expressly or implicitly, to displace state law. (Leining v. Foster Poultry Farms, Inc. (2021) 61 Cal.App.5th 203, 212.) Plaintiff MCCN has failed to plead any ground from which this Court could determine that Section 1902(bb), or MCCN’s status as a Section 330 grantee, preempts Welfare & Institutions Code section 14043.36, subdivision (a) other than (1) MCCN’s arguments that an absence of case law favors preemption (see SAC ¶¶ 38, 101; see also, e.g., Opp’n, 9:13-16), (2) MCCN’s construction of Section 1902(bb)’s scope in entitling MCCN to reimbursement of its $9.9 million in expenses related to Medi-Cal services provided during its suspension period (see SAC, ¶¶ 108-09; see also, e.g., Opp’n, 9:17-21), and (3) MCCN’s construction of its Section 330 grantee status entitling MCCN to reimbursement of its $9.9 million in expenses related to Medi-Cal services provided during its suspension period (see SAC, ¶¶ 17-20, 23-27, 30-35, 102-07; see also, e.g., Opp’n, 8:13-22).

However, the absence of case law or statutes relating to this issue are insufficient for these purposes because the Court must suppose the validity of statutes, such as Welfare & Institutions Code section 14043.36, subdivision (a). (See Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814-15 [“[A]ll presumptions and intendments favor the validity of a statute and mere doubt does not afford sufficient reason for a judicial declaration of invalidity” (citations omitted)].) The Court also finds MCCN’s preemption arguments based on Section 1902(bb) and Section 330 status are tenuous and cast nothing more than doubt on the validity of Welfare & Institutions Code section 14043.36, subdivision (a), because the Court does not find that MCCN’s preemption arguments clearly show a congressional intent for the U.S. Legislature to invalidate all state laws, including California’s, designed to impede a suspended Medicare services provider from charging its State for expenses incurred within the Medicare statutory scheme during a time of suspension. (Leining v. Foster Poultry Farms, Inc., supra, 61 Cal.App.5th at p. 212 [congressional intent showing required]; Calfarm Ins. Co. v. Deukmejian, supra, at pp. 814-15 [validity of laws presumed].)

The Court also finds that MCCN’s opposition reliance on Tulare Pediatric is unavailing because that case is distinguishable. Tulare contemplated whether a federally qualified health center was entitled to collecting 100% of its costs outside of the context of whether the FQHC was in suspended status when it incurred those costs. (See Tulare Pediatric Health Care Center v. State Dept. of Health Care Services, supra, 41 Cal.App.5th at p. 171 [“Now we decide the merits: federal law requires the State pay Tulare Clinic 100 percent of the $106-per-patient-visit sum that Tulare Clinic paid Kamboj,” i.e., “the State must make Tulare County whole on this score” and “California’s Medi-Cal statute is consistent with this federal requirement”]; see also Opp’n, 8:23-9:4 [citing to Tulare at this pin cite].)

Last, the Court finds the wind down allegations in the SAC do not save the pleading, largely based on the reasoning advanced by DHCS in its reply. It is true that a Medi-Cal provider must first receive permission from the U.S. HRSA to wind down its operations and may thus be entitled to payments for services rendered to Medicaid qualifying patients during the wind down as a result. (Health Center Program Compliance Manual (Aug. 20, 2018) HRSA, § 6, p. 33 <https://bphc.hrsa.gov/sites/default/files/bphc/compliance/hc-compliance-manual.pdf> [as of Nov. 10, 2022] [“In accordance with 45 CFR 75.308(c)(1)(i), health centers must request prior approval from HRSA for a ‘Change in the scope or the objective of the project or program (even if there is no associated budget revision requiring prior written approval)’”].) However, the allegations in the SAC generally and as to the first cause of action specifically do not plead that MCCN in fact wound down during its suspension period or that it made any attempt to do so. (See SAC, ¶¶ 35 [“Even if MCCN had decided at that time to begin the process of winding down and terminating,” indicating MCCN does not allege it did so decide (emphasis added)], 107 [“DHCS knew, or should have known, that even if MCCN had decided to terminate all sites and wind down its Section 330 grant immediately upon receipt of DHCS’ suspension letter,” indicating MCCN does not allege it attempted to wind down (emphasis added)].) The Court cannot, in analyzing DHCS’s demurrer, give merit to the pleadings that MCCN is entitled to receive payment for Medi-Cal services provided during the time it could have wound down because MCCN does not allege it in fact attempted to wind down, so as to be entitled for compensation.

Defendant DHCS’s Demurrer to the first cause of action is therefore SUSTAINED, With Leave to Amend.

Second Cause of Action, Negligence: SUSTAINED, With Leave to Amend.

“‘The elements of a cause of action for negligence are … “(a) a legal duty to use due care; (b) a breach of such legal duty; [and] (c) the breach as the proximate or legal cause of [d] the resulting injury.”’” (Ladd v. County of San Mateo (1996) 12 Cal.4th 913, 917.)

The SAC’s second cause of action alleges that DCHS was negligent “[i]n connection with [its reliance on] the DOJ investigation that led to MCCN’s suspension” because “DHCS should have known that the affidavit [that the Cal DOJ used to obtain a search warrant for MCCN’s documents in the Cal DOJ’s fraud investigation into MCCN] contained false information” insofar as a “quick legal records search in the federal court database would have shown that the FCA litigation [on which the Cal DOJ affidavit relied] had been resolved in MCCN’s favor a full year prior to the time when [the special agent who drafted the affidavit] made his [alleged] misrepresentations” to the court issuing the search warrant, particularly where the special agent “failed to advise the issuing court that the federal court adjudicating the FCA matter [on which the affidavit was based] found [the] testimony [of the primary witness in that case, who alleged that ‘she prepared false medical records and submitted false billing on behalf of MCCN’] [was] less than credible” and where MCCN received no information that the Cal DOJ ultimately “found any impropriety in MCCN’s provision of services or billing practices.” (SAC, ¶¶ 61-62, 111-14.)

The second cause of action also relies on “Welf. & Inst. Code § 14107.11(d),” which “imposes a duty upon DHCS to ‘carefully consider’ any allegations of fraud before imposing a suspension,” where “DHCS only has the power to impose a suspension once an allegation has been determined to be ‘credible’ as defined in the statute and determined by that careful consideration” and where “the ramifications of [the special agent’s] … affidavit … [made it] incumbent on DHCS to ‘double-check’ [the special agent’s] work” such that “[h]ad DHCS done such quality control, the flimsy nature of the affidavit would have been readily apparent and it is likely DHCS would not have issued the suspension.” (SAC, ¶ 115.)

In its demurrer, DHCS argues in relevant part that “[i]n reviewing the issuance of a search warrant, the question is not whether the investigative agent acted properly, but whether the magistrate acted properly.” (Opp’n, 15:16-18 [citing to People v. Tuadles (1992) 7 Cal.App.4th 1777, 1783-84 for the quoted language].) Otherwise stated, DHCS argues that if MCCN premises its negligence claim against DHCS on DHCS’s reliance on the issuance of a search warrant against MCCN’s billing practices, as informed by an affidavit drafted by a special agent for the Cal DOJ, then the issue raised by MCCN is whether DHCS properly relied on the court’s issuance of a search warrant for fraudulent billing against MCCN, not on the special agent’s conduct, making the second cause of action improperly pleaded as to breach of duty. Indeed, “[a] magistrate’s ‘determination of probable cause should be paid great deference by reviewing courts.’” (People v. Tuadles, supra, at p. 1783.)

In opposition and in relevant part, MCCN argues that “MCCN’s SAC sufficiently describes how DHCS, as a state agency, had a duty to thoroughly assess the allegations against MCCN before issuing a highly damaging suspension” and that “DHCS breached that duty by failing to follow California law and CMS guidance instructing it to review all allegations, facts, and evidence carefully before issuing a suspension” as pleaded in the “SAC [at] ¶¶ 41-45, 115-116[]).” (Opp’n, 13:9-13.)

In reply, DHCS argues in relevant part that “fatal to Mission City’s claim, subdivision (d) of Welfare and Institutions Code section 14107.11 expressly provides that ‘an allegation of fraud shall be considered credible if it exhibits indicia of reliability . . . sufficient to meet the constitutional prerequisite to a law enforcement search or seizure of comparable business assets.’” (Reply, 6:24-27.)

The Court agrees with DCHS.

To whatever degree the SAC alleges DHCS relied on the Cal DOJ’s investigation into MCCN for fraudulent practices in suspending MCCN from the Medi-Cal program, the SAC does not adequately plead that DHCS broke any duty to MCCN—either pursuant to Welfare & Institutions Code section 14107.11 or otherwise—because DHCS relied, as pleaded in the SAC, on a Cal DOJ investigation that was sanctioned through a search warrant issued by a magistrate judge (SAC, ¶¶ 61-62), which necessarily required a finding of probable cause of illegality against MCCN (People v. Tuadles, supra, 7 Cal.App.4th at pp. 1782-84). This satisfied the statutory provision that “[a]n allegation of fraud shall be considered credible if it exhibits indicia of reliability as recognized by state or federal courts … sufficient to meet the constitutional prerequisite to a law enforcement search or seizure of comparable business assets” (Welf. & Inst. Code § 14107.11(d)).

Defendant DHCS’s Demurrer to the second cause of action is therefore SUSTAINED, With Leave to Amend.

Third Cause of Action, Unjust Enrichment: SUSTAINED, With Leave to Amend.

California law is unclear as to whether Unjust Enrichment in and of itself is a claim on which relief can be granted. The Court of Appeal for the First District has held that “[u]njust enrichment is not a cause of action, [but rather, is] just a restitution claim.” (Hill v. Roll Int’l Corp. (2011) 195 Cal.App.4th 1295, 1307 [quoting to McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1490 [quotations omitted]; see also McKell, supra, 142 Cal.App.4th at p. 1490 [“[t]here is no cause of action for unjust enrichment”; “[r]ather, unjust enrichment is a basis for obtaining restitution based on quasi-contract or imposition of a constructive trust”].) In contrast, the Court of Appeal for the Second District has held that the elements of a cause of action for unjust enrichment are simply stated as receipt of a benefit and unjust retention of the benefit at the expense of another where “[t]he term ‘benefit’ ‘denotes any form of advantage’” and which “may take any form, direct or indirect” or “consist of services as well as property,” where “[a] saved expenditure or a discharged obligation is no less beneficial to the recipient than a direct transfer.” (Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc. (2018) 29 Cal.App.5th 230, 238 [citing Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 51].)

For the purposes of this discussion, the Court again adopts the elements stated in Professional Tax Appeal v. Kennedy-Wilson Holdings, Inc., supra.

The Court adopts its discussion ante vis-à-vis the first cause of action on demurrer to determine that the SAC does not properly plead grounds on which this Court could find that MCCN is properly entitled to the $9.9 in Medi-Cal expenses incurred during its 18-month suspension because the State of California cannot be found, on the pleadings, to have been unjustly enriched in the amount of $9.9 million where MCCN has failed to plead authority entitling MCCN to recover these costs during its 18-month suspension period, when MCCN should not have been taking in Medi-Cal patients for medical treatment during that time, conflicts with 42 U.S.C. section 254b, subdivision (k)(3) aside. (SAC, ¶¶ 120-29.)

Defendant DHCS’s Demurrer to the third cause of action is therefore SUSTAINED, With Leave to Amend.

Conclusion

Defendant Department of Health Care Services (DHCS)’s Demurrer to the Second Amended Complaint is SUSTAINED, in Full, With Leave to Amend, because the Court’s finds that none of the SAC’s three causes of action are sufficiently pleaded within the meaning of Code of Civil Procedure section 430.10, subdivision (e).

Plaintiff Mission City Community Network, Inc. is given 14 DAYS LEAVE TO AMEND its pleadings.

Plaintiff MCCN should be aware of Code of Civil Procedure section 430.41, subdivision (e)(1), providing that “[i]n response to a demurrer and prior to the case being at issue, a complaint or cross-complaint shall not be amended more than three times, absent an offer to the trial court as to such additional facts to be pleaded that there is a reasonable possibility the defect can be cured to state a cause of action,” where the Court reads the statute to include challenges in the form of motions for judgment on the pleadings as a ‘demurrer’ for the purpose of the three amendment limit.