Judge: Barbara M. Scheper, Case: 21STCV30021, Date: 2022-08-24 Tentative Ruling
Case Number: 21STCV30021 Hearing Date: August 24, 2022 Dept: 30
Dept.
30
Calendar
No.
Maxi-Med
Supply, Inc. vs. Health Net, LLC, et. al., Case No. 21STCV30021
Tentative Ruling re: Defendant’s Demurrer to Second Amended
Complaint; Motion to Strike
Defendant Health
Net, LLC (Defendant) demurs to the Second Amended Complaint (SAC) of Plaintiff
Maxi-Medi Supply, Inc. (Plaintiff). The demurrer is sustained without leave to
amend
In reviewing the legal sufficiency of a complaint against a demurrer, a
court will treat the demurrer as admitting all material facts properly pleaded,
but not contentions, deductions, or conclusions of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 (Blank); C & H Foods Co.
v. Hartford Ins. Co. (1984) 163 Cal.App.3d 1055, 1062.) It is well settled
that a “demurrer lies only for defects appearing on the face of the
complaint[.]” (Stevens v. Superior Court
(1999) 75 Cal.App.4th 594, 601.) “The rules by which the sufficiency of a
complaint is tested against a general demurrer are well settled. We not only
treat the demurrer as admitting all material facts properly pleaded, but also
give the complaint a reasonable interpretation, reading it as a whole and its
parts in their context.” (Guclimane Co.
v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38 (internal quotes
omitted).) For purposes of ruling on a demurrer, the complaint must be
construed liberally by drawing reasonable inferences from the facts pleaded. (Wilner v. Sunset Life Ins. Co. (2000) 78
Cal.App.4th 952, 958.)
When ruling on a
demurrer, the Court may only consider the complaint’s allegations or matters
which may be judicially noticed. (Blank,
supra, 39 Cal.3d at p. 318.) The Court may not consider any other extrinsic
evidence or judge the credibility of the allegations plead or the difficulty a
plaintiff may have in proving his allegations. (Ion Equip. Corp. v. Nelson (1980) 110 Cal.App.3d 868, 881.) A
demurrer is properly sustained only when the complaint, liberally construed,
fails to state facts sufficient to constitute any cause of action. (Kramer v. Intuit Inc. (2004) 121
Cal.App.4th 574, 578.)
The SAC alleges that Plaintiff is a California
corporation registered with the United States Centers for Medicare &
Medicaid as a credentialed provider of medical devices, and is enrolled as a
Medi-Cal Provider by the State of California Department of Health Care
Services. (SAC ¶ 2.) Defendant is an LLC that acts in part as a health
insurance company, and is one of the primary providers of Medi-Cal services to
Californians. (SAC ¶ 3.) Plaintiff provides medical supplies to Defendant’s
policyholders. (SAC ¶ 3.)
Plaintiff’s claims arise out of
allegations that Defendant owes over $160,000 of accounts receivable to
Plaintiff for the provision of medical supplies to Defendant’s policyholders.
(SAC ¶ 9.) Defendant has also sought meritless chargebacks from Plaintiff based
on claims of overpayments of reimbursements from Defendant to Plaintiff. (SAC ¶
10.)
First
Cause of Action for Breach of Contract
The elements of a cause of
action for breach of contract are: (1) the contract, (2) the plaintiff’s
performance of the contract or excuses for nonperformance, (3) the defendant’s
breach, and (4) the resulting harm to the plaintiff. (Careau & Co. v.
Sec. Pacific Bus. Credit, Inc. (1990) 222 Cal.App.3d 1371, 1388.) “A cause
of action for breach of implied contract has the same elements as does a cause
of action for breach of contract, except that the promise is not expressed in
words but is implied from the promisor’s conduct.” (Yari v. Producers Guild
of America, Inc. (2008) 161 Cal.App.4th 172, 182.)
“Like an express contract, an
implied-in-fact contract requires an ascertained agreement of the parties.” (Unilab
Corp. v. Angeles-IPA (2016) 244 Cal.App.4th 622, 636.) “While
an implied in fact
contract may be inferred from the conduct,
situation or mutual relation of the parties, the very heart of this kind of
agreement is an intent to promise.” (Division of Labor Law Enforcement v.
Transpacific Transportation Co. (1977) 69 Cal.App.3d 268, 275.) “In pleading a cause
of action on an agreement implied from conduct, only the facts from which the
promise is implied must be alleged.” (Requa v. Regents of University of
California (2012) 213 Cal.App.4th 213, 228.)
Plaintiff alleges that
it had an arrangement with Defendant in which Plaintiff would provide medical
supplies to patients with insurance through Defendant, bill Defendant for the
equipment provided, then receive payment from Defendant for those services. (SAC
¶ 8.) Plaintiff’s allegations do not show the existence of any implied-in-fact
contract between itself and Defendant. Plaintiff has not alleged any conduct by
Defendant out of which an implied-in-fact contract could be inferred. The
allegation that Defendant issued a “pre-authorization” does not show any
agreement between the parties regarding compensation for the services allegedly
provided – the attached authorization specifically qualifies, “An authorization
is not a guarantee of payment. Member must be eligible at the time services are
rendered. Services must be a covered Health Plan Benefit and Medically Necessary.”
(SAC ¶ 9, Ex. C.)
Because Plaintiff has not alleged facts showing an
agreement between the parties implied by conduct, the demurrer is sustained as
to the first cause of action.
Second
Cause of Action for Fraud
The elements of fraud are:
(1) misrepresentation (false representation, concealment, or nondisclosure);
(2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance;
(4) justifiable reliance; and (5) damages. (See Civil Code §1709.) Fraud actions
are subject to strict requirements of particularity in pleading. (Committee
on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197,
216.) “The particularity requirement demands that a
plaintiff plead facts which show how, when, where, to whom, and by what means
the representations were tendered.” (Cansino v. Bank of America (2014)
224 Cal.App.4th 1462, 1469.)
The SAC alleges that Defendant “represented to Plaintiff,
that authorizations would result in the payment for supplies provided to
Defendant’s insured.” (SAC ¶ 19.) Defendant and certain of its employees were
aware of the denial of payments following authorizations. (SAC ¶ 21.) Plaintiff
received unusual “error codes” from Defendant as Defendant delayed and rejected
Plaintiff’s claims for reimbursement. Defendant sometimes denied payments on
the basis that Plaintiff was late in seeking payment. Defendant’s staff also
sent letters to patients directing them to go to a different supplier. (SAC ¶
21.)
Plaintiff’s second cause of action
lacks the requisite particularity for pleading of a fraud action, because
Plaintiff has failed to allege any specific misrepresentation made by Defendant
to Plaintiff, or “how, when, where to whom, and by what means the alleged
misrepresentations were made.”
Therefore, the demurrer is sustained
as to the second cause of action.
Third
Cause of Action for Unfair Business Practices
California’s
Unfair Competition Law (UCL) prohibits unlawful, unfair, or fraudulent business
acts or practices. (Bus. & Prof. Code, § 17200 et seq.) “An
‘unlawful business activity’ includes ‘anything that can properly be called a
business practice and that at the same time is forbidden by law.’” (People
v. McKale (1979) 25 Cal.3d 626, 632 [quoting Barquis v. Merchants
Collection Assn. (1972) 7 Cal.3d 94, 113].) “Virtually
any law or regulation—federal or state, statutory or common law, can serve as a
predicate for a Business and Professions Code section 17200 ‘unlawful’
violation. [Citation.]” (Paulus v. Bob Lynch Ford, Inc. (2006) 139
Cal.App.4th 659, 681 [internal quotations omitted].)
The UCL does not define the term
“unfair,”
and judicial interpretation of the “unfair” prong has
been somewhat unsettled. (See Durell v. Sharp Healthcare (2010)
183 Cal.App.4th 1350, 1364-66.) “[W]here a claim of
an unfair act or practice is predicated on public policy . . . the public
policy which is a predicate to the action must be ‘tethered’ to specific
constitutional, statutory or regulatory provisions.” (Id. at 1366.)
“While the scope of
conduct covered by the UCL is broad, its remedies are limited. [Citation.] A
UCL action is equitable in nature; damages cannot be recovered. [Citation.] . .
. [U]nder the UCL, ‘prevailing plaintiffs are generally limited to injunctive
relief and restitution.’ [Citation.]” (Korea Supply Co. v. Lockheed Martin
Corp. (2003) 29 Cal.4th 1134, 1144 (Korea Supply Co.).) “The object
of restitution is to restore the status quo by returning to the plaintiff funds
in which he or she has an ownership interest.” (Id. at 1149.)
Plaintiff’s
UCL cause of action alleges that Defendant has “engaged in and continue[s] to
engage in unlawful business practices of misappropriating insurance premiums and
revenues without regard for the lawful duties of an insurance company to pay
for the medical needs of its insured.” (SAC ¶ 29.) Plaintiff alleges that
Defendant’s conduct violated the “free choice of providers” laws by sending
letters to insured patients requesting that they switch to a medical supplier
other than Plaintiff. (SAC ¶ 29.) In the letter attached to the SAC, Defendant
informs the patient that their supplies “are being sent by an out-of-network
provider . . . [which is] a provider of health services that does not have a
contract with [Defendant]. The supplies you get from an out-of-network provider
are not a covered benefit.” (SAC ¶ 29, Ex. G [43].) The letter then states,
“[t]o avoid charges, please use [Defendant’s] contracted provider for your
supplies . . . Our contracted provider is J & B Medical Supply Co. Inc.” (Ibid.)
These facts
are insufficient to state a cause of action under the UCL. The cited “Free
choice of providers” law, 42 C.F.R. § 431.51, requires that a state Medicaid
plan allow beneficiaries to obtain Medicaid services from any entity qualified
to furnish the services and willing to furnish them, and that “[a] beneficiary
enrolled in a primary care case-management system, a Medicaid MCO, or other
similar entity will not be restricted in freedom of choice of providers of
family planning services.” (42 C.F.R. § 431.51, subd. (b).) This section is inapplicable
to the facts pled as there are no allegations that the medical services at
issue included “family planning services.” Furthermore, Defendant’s letter,
which directed the patient to an in-network provider on the basis that medical
supplies sent by Plaintiff were not covered benefits, does not constitute an
unlawful or unfair business practice.
Therefore,
the demurrer is sustained as to the third cause of action.
Motion to Strike
Because the demurrer is sustained, the motion to strike
is denied as moot.