Superior Court of California

County of Los Angeles

Department 78

PRIME HEALTHCARE SERVICES ALVARADO, LLC, et al.,

LOCAL INITIATIVE HEALTH CARE AUTHORITY OF LOS ANGELES COUNTY DBA L.A. CARE HEALTH PLAN,

DEFENDANT L.A. CARE’S DEMURRER

The demurrer is SUSTAINED as to the third through seventh causes of action.

The demurrer is OVERRULED as to the eight and ninth causes of action.

Moving party to provide notice.

FACTUAL BACKGROUND

 This is an action for breach of implied-in-law and implied-in-fact contract, open account, third party beneficiary claims, breach of the covenant of good faith and fair dealing, and declaratory judgment arising from a dispute over payment for medical treatment Plaintiffs performed on Defendant’s insured members.

PROCEDURAL HISTORY

Plaintiffs Prime Healthcare Services Inc. Alvarado, Garden Grove, Huntington Beach, North Vista, Anaheim, Eat Valley, Glendora, and Montclair, Desert Valley Hospital, LLC, St. Francis Medical Center, and East Valley Glendora Hospital, LLC filed their Complaint against Defendant Local Initiative Health Care Authority of Los Angeles County (“LA Care”) on May 19, 2022.

On October 25, 2022, Plaintiffs filed a First Amended Complaint (“FAC”)

On December 13, 2022, Defendant filed the instant demurrer.

On February 24, 2023, Plaintiffs filed their opposition.

On March 2, 2023, Defendant filed its reply.

DISCUSSION

Defendant demurs to the third, fourth, fifth, sixth, seventh, eighth and ninth causes of action. Defendant withdrew the demurrer as to the first and second causes of action.

A demurrer for sufficiency tests whether the complaint states a cause of action. (Hahn v. Mirda (2007) 147 Cal.App.4th 740, 747.) When considering demurrers, courts read the allegations liberally and in context. In a demurrer proceeding, the defects must be apparent on the face of the pleading or via proper judicial notice. (Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968, 994.) “A demurrer tests the pleadings alone and not the evidence or other extrinsic matters. Therefore, it lies only where the defects appear on the face of the pleading or are judicially noticed. (Code Civ. Proc., §§ 430.30, 430.70.) At the pleading stage, a plaintiff need only allege ultimate facts sufficient to apprise the defendant of the factual basis for the claim against him. (Semole v. Sansoucie (1972) 28 Cal. App. 3d 714, 721.) A “demurrer does not, however, admit contentions, deductions or conclusions of fact or law alleged in the pleading, or the construction of instruments pleaded, or facts impossible in law.” (S. Shore Land Co. v. Petersen (1964) 226 Cal.App.2d 725, 732 (internal citations omitted).)

Third Cause of Action – Breach of Implied in Fact Contract (Emergency Claims)

Fourth Cause of Action – Breach of Implied in Fact Contract (Post-Stabilization Claims)

Defendant demurs to the third and fourth causes of action on the grounds that the FAC fails to state a cause of action for breach of implied-in-fact contract because the FAC does not allege mutual consent or agreement as to a payment rate, an essential term.

With respect to the other basis for the demurrer as to these causes of action, it is foreclosed by the decision in County of Santa Clara v. Superior Court of Santa Clara (2023) 14 Cal.5th 1034 where the Supreme Court held that the immunity provisions of the Government Claims Act are directed toward tort claims and not liability based on contract.

The elements of a claim for breach of contract are: “(1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff.” (Oasis West Realty, LLC v. Goldman (2011) 51 Cal. 4th 811, 821.) In addition, the complaint must demonstrate damages proximately caused by the breach. (St. Paul Ins. v. American Dynasty (2002) 101 Cal.App.4th 1038, 1060.) 

“An implied-in-fact contract is one, the existence and terms of which are manifested by conduct (Civ. Code, section 1621).” (Chandler v. Roach (1957) 156 Cal.App.2d 435, 439.) Both types of contracts are identical in that they require a meeting of minds or an agreement. (Allied Anesthesia Medical Group, Inc. v. Inland Empire Health Plan (2022) 80 Cal.App.5th 794, 808.) 

“Contract formation requires mutual consent, which cannot exist unless the parties agree upon the same thing in the same sense.” (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 208.) Mutual assent is determined under an objective standard applied to the outward manifestations or expressions of the parties, i.e., the reasonable meaning of their words and acts and not their unexpressed intentions or understandings. (Id at p.208.)

Defendant contends that Pacific Bay Recovery, Inc. v. Cal. Physicians’ Servs., Inc. (2017) 12 Cal. App. 5th 200, 215-16 and Allied Anesthesia Med. Grp., Inc. v. Inland Empire Health Plan (2022)  80 Cal. App. 5th 794, 809  support the sustaining of the demurrer as to these causes of action. 

Defendant argues that the essential claim here is that Plaintiffs did not pay the billed amount and that there can be no allegation that there was a meeting of the minds in this regard.

Defendant states that the Court should disregard certain allegations contained in the FAC because those allegations are contradicted by the allegations made by Plaintiffs in the original complaint filed in this action, as well as in the complaint filed in the 21STCV17151 case. 

Plaintiffs contend that there is not a contradiction between these other pleadings and the FAC. The causes of action in the FAC allege that the conduct at issue occurred from 2020 to the present. The complaint in the 21STCV17151 case concerns conduct from 2017 to the present as did the original complaint in this matter. Plaintiffs contend that since the FAC in this case alleges that prior to the “relevant period” (meaning prior to 2020) LA Care paid the state set rates the prior course of conduct could have occurred prior to 2017 and thus there is no inconsistency among all the pleadings.

The Court incorporates by reference its ruling in 21STCV17151 on the motion for judgment on the pleadings.

The demurrer is sustained with leave to amend as to these causes of action to allow Plaintiffs to clarify the time period for the course of conduct they are alleging during which Defendant allegedly paid state set rates and clarifying that they are relying on that time frame to support the cause of action and not on anything involving authorization by Defendant.

Plaintiffs also must specify whether these causes of action are with respect to both LA Care patients covered by commercial insurance and LA Care patients covered by Medi-Cal and whether the state set rates and the previous course of conduct of paying state set rates applies to both sets of patients.

Simply put, the Plaintiffs have made it virtually impossible for the Court to render consistent rulings across two cases that are essentially the same. 

Fifth Cause of Action – Promissory Estoppel (Post Stabilization Claims)

Defendant demurs to the fifth cause of action for promissory estoppel on the grounds that Plaintiffs fail to allege a clear and unambiguous promise and fail to allege detrimental reliance.

“The elements of a promissory estoppel claim are (1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) the reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” (Flintco Pacific, Inc. v. TEC Management Consultants, Inc. (2016) 1 Cal.App.5th 727, 734.)

Here, the FAC alleges that LA Care conveyed to Prime hospitals a promise that LA Care would pay for post-stabilization services rendered to LA Care members. (FAC ¶70.) Prime hospitals reasonably and foreseeably relied upon LA Care’s representations and rendered post-stabilization services in accordance with the patients’ health plans. (FAC ¶71.) LA Care failed to pay for post-stabilization services. (FAC ¶72.) Had Prime known that LA Care’s representations were false, it would not have provided these services. (FAC ¶73.) Prime suffered damages as a result of LA Care’s wrongdoing. (FAC ¶75.)

The FAC alleges facts that LA Care made a promise to pay state-set rates in exchange for Plaintiffs’ post-stabilization services and that Plaintiffs relied on this promise to provide such services to Defendant’s insured members. Plaintiffs’ reliance was reasonable because Defendant made promises to pay the state-set rates under its health plans. Finally, Plaintiffs suffered damages as a result of the reliance because LA Care failed to reimburse Plaintiffs as promised. 

The demurrer is sustained as to this cause of action. Based on the pleadings in the FAC, it is not clearly alleged how Defendant made a clear and unambiguous promise to pay state-set rates for post-stabilization services. It appears that this cause of action may be based on an alleged  course of conduct in the past or Defendant’s authorization of treatment which would not seem to be a clear an unambiguous promise to pay a particular rate.

The parties should be prepared to discuss leave to amend at the hearing.

Sixth cause of action – Breach of Contract Third Party Beneficiary

Defendant demurs to the sixth cause of action on the grounds that Plaintiffs are only incidental beneficiaries of a contractual agreement to pay for an enrollee’s medical care.

In order for a plaintiff to allege breach of contract as a third party beneficiary, the plaintiff must plead a contract that was made expressly for his benefit. (See Martin v. Bridgeport Community Association, Inc. (2009) 173 Cal.App.4th 1024, 1034.) “‘The test in deciding whether a contract inures to the benefit of a third person is whether an intent to so benefit the third person appears from the terms of the agreement . . . .’” (Id. (quoting Schonfeld v. City of Vellejo (1975) 50 Cal.App.3d 401, 420.) “The fact that a third party is incidentally named in the contract, or that the contract, if carried out according to its terms, would inure to his benefit, is not sufficient to entitle him to enforce it.” (Id.) “Reading the agreement as a whole in light of the circumstances under which it was made, the terms of the agreement must clearly manifest an intent to make the obligation inure to the benefit of the third party.” (Id.) 

In an action based on a written contract, a plaintiff may plead the legal effect of the contract rather than its precise language. (Construction Protective Services, Inc. v. TIG Specialty Ins. Co. (2002) 29 Cal.4th 189, 198–199.) Generally, a health care service provider’s agreement to pay for medical care is intended to benefit the enrollees, not treating physicians with whom there is no contractual relationship. (Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 795.)

Here, the FAC alleges that LA Care entered into unique written contracts with its members requiring LA Care to pay non-contracted providers for healthcare services rendered to LA Care members. (FAC ¶77.) LA Care’s health plans benefitted Prime as one of various providers who could render emergency and post-stabilization services. (FAC ¶79.) LA Care health plans required LA Care to reimburse Prime at state-set rates and make payments directly to Prime. (FAC ¶79.)

The facts alleged in the Complaint show that LA Care’s health plans contained provisions which would inure to Plaintiffs’ benefit because Defendant was required to pay Plaintiffs and other non-contracted providers for services rendered to Defendant’s members. However, the plans were generally intended to benefit the insured members receiving services from the non-contracted providers. The amount and manner in which Plaintiffs and other non-contracted providers were to be paid is only incidental to Defendant’s agreement to pay for its insured members’ medical care. The Complaint thus fails to allege facts that would support a third-party beneficiary theory. The demurrer is sustained as to this cause of action.

The parties should be prepared to discuss leave to amend at the hearing.

Seventh cause of action – Breach of the Covenant of Good Faith and Fair Dealing

Defendant demurs to the seventh cause of action for the same reasons as the sixth cause of action.

The elements for breach of the implied covenant of good faith and fair dealing are: (1) existence of a contract between plaintiff and defendant; (2) plaintiff performed his contractual obligations or was excused from performing them; (3) the conditions requiring defendant’s performance had occurred; (4) the defendant unfairly interfered with the plaintiff’s right to receive the benefits of the contract; and (5) the plaintiff was harmed by the defendant’s conduct. (Merced Irr. Dist. V. County of Mariposa (E.D. Cal. 2013) 941 F.Supp.2d 1237, 1280 (discussing California law).) Allegations must demonstrate defendant’s conduct for failure or refusal to discharge contractual responsibilities was a conscious and deliberate act, not an honest mistake, bad judgment or negligence. (Id.) “‘[T]he implied covenant of good faith and fair dealing is limited to assuring compliance with the express terms of the contract, and cannot be extended to create obligations not contemplated by the contract.’” (Ragland v. U.S. Bank Nat. Assn. (2012) 209 Cal.App.4th 182, 206 (quoting Pasadena Live v. City of Pasadena (2004) 114 Cal.App.4th 1089, 1094).) 

 

“Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” (Hicks v. E.T. Legg & Associates (2001) 89 Cal.App.4th 496, 508.) “[T]he scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and express terms of the contract.” (Id. at 509.) “The covenant of good faith and fair dealing . . . exists . . . to prevent one contracting party from unfairly frustrating the other party’s right to receive the benefits of the agreement actually made.” (Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 349.)  

“A ‘breach of the implied covenant of good faith and fair dealing involves something beyond breach of the contractual duty itself’ and it has been held that ‘[b]ad faith implies unfair dealing rather than mistaken judgment . . . .’” (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1394 (quoting Congleton v. National Union Fire Insurance Co. (1987) 189 Cal.App.3d 51, 59).) 

A plaintiff’s allegations of breach of the covenant of good faith that do not go beyond a statement of a mere contract breach may be disregarded as superfluous. (See Bionghi v. Metropolitan Water District (1999) 70 Cal.App.4th 1358, 1370.) 

Here, Plaintiffs fail to allege more than a contract breach with respect to themselves. The demurrer is sustained.

The parties should be prepared to address the issue of leave to amend at the hearing.

Eighth and Ninth causes of action – Declaratory judgment

Defendant demurs to the eighth and ninth causes of action for declaratory judgment on the grounds that they are derivative of the third cause of action for breach of implied-in-fact contract. 

To state a cause of action for declaratory relief, the plaintiff must plead the following elements: (1) person interested under a written instrument or a contract; or (2) a declaration of his or her rights or duties (a) with respect to another or (b) in respect to, in over or upon property; and (3) an actual controversy.  (Code Civ. Proc. § 1060; Ludgate Ins. Co. v. Lockheed Martin Corp. (2000) 82 Cal.App.4th 592, 605-06; Bennett v. Hibernia Bank (1956) 47 Cal.2d 540, 549.)  “For declaratory relief, the party must show it has either suffered or is about to suffer an injury of ‘sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.”  (Stonehouse Homes v. City of Sierra Madre (2008) 167 Cal.App.4th 531, 542.)  “[A]vailability of another form of relief that is adequate will usually justify refusal to grant declaratory relief’ but “[t]he refusal to exercise the power is within the court’s legal discretion. . . .”  (Cal. Ins. Guar. Ass’n v. Superior Court (1991) 231 Cal.App.3d 1617, 1624; Pellegrini v. Weiss (2008) 165 Cal.App.4th 515, 529 (“The question whether declaratory relief is appropriate in a given case is addressed to the trial court’s discretion.”); General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 470-471 (an action in declaratory relief will not lie where the issue to be determined is the same as that in a pending action at law between the same parties).) An action for declaratory relief does not survive if it is wholly derivative of another failed cause of action. (Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 794.)

Here, the eighth and ninth causes of action state that a current dispute exists between Plaintiffs and Defendant concerning the amount Defendant is obligated to pay for hospital services rendered to Defendant’s insured members. (FAC, ¶¶91, 95.) Defendant disputes the contention that it is obligated to pay Plaintiffs for billed charges and declaratory relief is necessary to allow Plaintiffs and Defendant to ascertain their rights and duties with respect to the amount Defendant must pay. (FAC ¶97.) 

Defendant argues that both the eighth and ninth cause of action are wholly derivative of failed causes of action for breach of contract. Defendant also argues that the causes of action only concern past wrongs. 

The eighth cause of action is derivative of alleged violations of Code of Regulations, section 1300.71(a)(3). The Court overruled Defendant’s demurrer as to the breach of contract claims. The seventh cause of action is therefore not derivative of any failed cause of action. Additionally, the seventh of action allege that the dispute over the amount Defendant must pay is ongoing. Thus, the Complaint sufficiently alleges that Plaintiffs will suffer future wrongs. The demurrer is overruled as to the eighth cause of action.

The ninth cause of action is based on Plaintiff’s agreement to provide services in exchange for Defendant’s agreement to pay state-set rates. The Court overruled Defendant’s demurrer as to the breach of implied-in-fact contracts. Defendant also withdrew its demurrers as to the causes of action for breach of implied-in-law contracts. Therefore, the ninth cause of action is not based on a failed cause of action. Additionally, the FAC alleges that the dispute over the amount owed by Defendant is ongoing, meaning the FAC properly alleges future wrongs.

DATED:  August 17, 2023

______________________________

Hon. Jill Feeney

Judge of the Superior Court