Judge: Mark A. Young, Case: 24SMCV00182, Date: 2024-09-10 Tentative Ruling

Case Number: 24SMCV00182    Hearing Date: September 10, 2024    Dept: M

CASE NAME:             Regents of the University of California v. Pitman Farm Welfare Benefit Plan, et al. 

CASE NO.:                   24SMCV00182 

MOTION:                     Demurrer to the Complaint  

HEARING DATE:   9/10/2024

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.) 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. (CCP §§ 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.) 

“Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.” (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.) It is an abuse of discretion for the court to deny leave to amend where there is any reasonable possibility that plaintiff can state a good cause of action. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) The burden is on plaintiff to show¿in what manner¿plaintiff can amend the complaint, and¿how¿that amendment will change the legal effect of the pleading.¿(Id.) 

REQUEST FOR JUDICIAL NOTICE 

Defendant Pitman Farms Welfare Benefit Plan requests judicial notice of Exhibit 1 to the Declaration of David Rubinstein, the “Plan Document and Summary Plan Description” (the “Plan Document”). The unopposed request is GRANTED.

ANALYSIS 

Defendant demurs to Plaintiff Regents of the University of California’s complaint for quantum meruit and breach of implied contract.  A claim for quantum meruit must allege: 1) performance of services, work or labor; 2) at defendant’s request; and 3) circumstances inferring defendant’s promise to pay a reasonable value.  (Maglica v. Maglica (1998) 66 Cal.App.4th 442, 449-450; Palmer v. Gregg (1967) 65 Cal.2d 657, 660; see also MKB Management, Inc. v. Melikian (2010) 184 Cal.App.4th 796, 805)  “ ‘The measure of recovery in quantum meruit is the reasonable value of the services rendered provided they were of direct benefit to the defendant.’ ” (Chodos v. Borman (2014) 227 Cal.App.4th 76, 96; quoting Palmer, supra, 65 Cal.2d at 660.) “The idea that one must be benefited by the goods and services bestowed is thus integral to recovery in quantum meruit.” (Maglica, supra, 66 Cal.App.4th at 450.) Therefore, a plaintiff must establish both that he was acting pursuant to either an express or implied request for such services from the defendant and that the services rendered were intended to and did benefit the defendant; further, the defendant must have retained the benefit with full appreciation of the facts.  (Pacific Bay Recovery, Inc. v. California Physicians' Services, Inc.¿(2017) 12 Cal.App.5th 200; Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782.) 

To allege a breach of contract, a plaintiff must plead the contract, plaintiff’s performance or excuse for non-performance, defendant’s breach, and damage to plaintiff therefrom. (Acoustics, Inc. v. Trepte Constr. Co. (1971) 14 Cal.App.3d 887, 913.) “As to the basic elements, there is no difference between an express and implied contract.¿While an express contract is defined as one, the terms of which are stated in words (Civ. Code, § 1620), an implied contract is an agreement, the existence and terms of which are manifested by conduct (Civ. Code, § 1621).... [B]oth types of contract are identical in that they require a meeting of minds or an agreement [citation]. Thus, it is evident that both the express contract and contract implied in fact are founded upon an ascertained agreement or, in other words, are consensual in nature, the substantial difference being in the mode of proof by which they are established [citation].” (Pacific Bay, supra, 12 Cal.App.5th at 215.)

Defendant argues that the claim fails because there exists a written contract between Plaintiff and First Health PPO. (Compl., ¶¶ 16-20; see Lance Camper Mfg. Corp. v. Republic Indem. Co. (1996) 44 Cal. App. 4th 194, 203 [implied-in-fact or quasi-contract generally “cannot lie where there exists between the parties a valid express contract covering the same subject matter”].) Plaintiff argues that during the relevant time period, UCLA Health and Pitman Farms did not have a direct, written contract. (Compl., ¶¶ 10-12, 16-17.) Instead, the complaint alleges that Pitman Farms, through its agents (EBMS), was a payor signatory to the First Health PPO Network. (Id.) Pursuant to this network, UCLA agreed to render medical services to beneficiaries of the Pitman Farms health plan and in exchange, Pitman Farms, being a payer signatory through EBMS, agreed to pay UCLA Health the negotiated rates pursuant to the Network terms. (Id.) The Court agrees that there is an inconsistency between a claim that an authorization for emergency services rendered created an implied-in-fact contract, and that a third-party written contract’s terms inform the terms of a newly created implied contract.

The Court, however, will permit Plaintiff to plead the alternative theories, despite the existence of a potentially applicable written contract. A plaintiff may plead such alternatives to a breach of contract claim where it “in doubt about what actually occurred or can be established by the evidence.” (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism, (2016) 6 Cal. App. 5th 1207, 1222.) In any amended pleading, Plaintiff should explain why there is a doubt as to the enforceability of the pled express written agreement. (See Klein v. Chevron U.S.A., Inc., (2012) 202 Cal. App. 4th 1342, 1389.

Defendant next claims that as a matter of law, mere “verification of benefits” and “authorizations” are legally insufficient to establish mutual assent, and that there are no allegations showing an agreement to pay a certain rate. “The consent of the parties to a contract must be: 1. Free; 2. Mutual; and 3. Communicated by each to the other.” (Civ. Code § 1565.) “Consent is not mutual, unless the parties all agree upon the same thing in the same sense.” (Civ. Code, § 1580.) “[A plaintiff’s] uncommunicated subjective intent is not relevant. The existence of mutual assent is determined by objective criteria. The test is whether a reasonable person would, from the conduct of the parties, conclude that there was mutual agreement.” (Hilleary v. Garvin (1987) 193 Cal.App.3d 322, 327.) “The manifestation of assent to a contractual provision may be ‘wholly or partly by written or spoken words or by other acts or by failure to act.’” (Merced County Sheriff’s Employees Assn. v. County of Merced (1987) 188 Cal.App.3d 662, 670.) The totality of the circumstances determines whether a binding contract has been formed. (California Food Service Corp., Inc. v. Great American Insurance Co. (1982) 130 Cal.App.3d 892, 897 see Fowler v. Security-First National Bank (1956) 146 Cal.App.2d 37, 47 [“If words are spoken under circumstances where it is obvious that neither party would be entitled to believe that the other intended a contract to result, there is no contract”].)

In Pacific Bay, an out-of-network medical services provider, Pacific Bay, contacted Blue Shield, an insurer, “to obtain prior authorization, precertification, and consent to render treatment to the subscriber and was led to believe it would be ‘paid a portion or percentage of its total billed charges, which charges correlated with usual, reasonable and customary charges.’ ” (Id. at 205.) Pacific Bay submitted claims to Blue Shield for services provided to a Blue Shield subscriber and Blue Shield paid Pacific Bay, but Pacific Bay claims the amount of the payment was insufficient. (Id. at 207.) The Pacific Bay Court held that because the claim arose from an insurance payment dispute concerning claims submitted by a medical provider to a health plan for processing and payment, the Knox-Keene Act controlled. (Ibid.)  The court determined that the payment of non-emergency services claims was generally limited by Claims Settlement Practices regulations, specifically Cal. Code Regs., Tit. 28, § 1300.71(a)(3)(C) which states “[f]or non-emergency services provided by non-contracted providers to PPO and POS enrollees: the amount set forth in the enrollee's Evidence of Coverage.” (Ibid.; see also Orthopedic Specialists of Southern California v. Public Employees' Retirement System (2014) 228 Cal.App.4th 644, 648.) With respect to the existence of the mutual assent required for an implied contract, the Pacific Bay court required further allegations that the insurer “authorized a certain amount of treatment or agreed to pay a specific rate.” (Pacific Bay, supra, 12 Cal.App.5th at 215 [emphasis added].) In Orthopedic Specialists, the allegations did not establish that the defendants promised to pay reasonable rates, rather in those cases the allegations merely established that they were “led to believe” that they would be paid reasonable rates. (Orthopedic Specialists, supra, 228 Cal.App.4th at 646, 649.)  In both cases, the insurer advised the provider of the insured’s coverage, but no explicit agreement was alleged that the insurer would pay a certain rate. Both courts found that an oral/implied promise was not created by such vague allegations.

Here, there are no specific facts demonstrating the parties’ mutual assent to a certain treatment or rate. The complaint alleges from August 8 through August 27, 2021, UCLA Health provided emergent, inpatient, continuous and medically necessary treatment to an individual (“Patient”). (Compl., ¶ 7.) Patient was a beneficiary of a health plan sponsored/administered by Pitman Farms. (¶8.) Pitman Farms and/or its agents (EBMS) authorized the medically necessary services rendered to Patient by UCLA Health. (¶ 9.) UCLA Health submitted the billed charges to Pitman Farms and/or its agents. (¶ 10.) UCLA Health’s usual and customary charges for the medically necessary services, supplies and/or equipment rendered to Patient amounted to $443,479.80, but Pitman Farms paid UCLA only $139,405.90. (¶ 11.) UCLA Health claims an outstanding bill, accounting for discounts, of $270,246.52. (¶ 12.)

The complaint further alleges that during the relevant period, Pitman Farms, by its words and/or conduct, requested UCLA Health provide Patient with medically necessary services, emergency services, supplies and/or equipment. (Compl., ¶ 15.) “Pitman Farms, and/or its agents, acknowledged the need for medical care for Patient and requested that UCLA Health provide medically necessary services to Patient by issuing authorization for the care rendered by UCLA Health.” (Id.) By such conduct, the parties understood that, “in exchange for UCLA providing necessary medical care, Pitman farms would pay UCLA for the services rendered.” (Id.) UCLA Health rendered medical care, reasonably relying on Pitman Farm’s representations and authorization for medical treatments, based on the custom and practice of the health care industry. (¶ 22.) Pitman “confirmed coverage” and “authorized” the necessary services, which conferred a benefit. (¶ 23.) Indeed, these allegations do not show sufficient facts of mutual assent to pay for certain services and/or rates. At best, the complaint shows that, at unidentified times, someone at UCLA contacted EBMS to verify eligibility and benefits, and that UCLA received unspecified authorizations for unspecified services. As seen in Pac. Bay, conclusory allegations that Defendant gave an “authorization”, when combined with partial payments, do not support the existence of an implied agreement. For this same reason, there are insufficient facts to show that Defendant requested the services to support a quantum meruit claim. There is no pled express or implied request for specific services from Defendant.

Plaintiff asserts that this action is distinguishable from the above cases because Plaintiff alleges that the authorizations were for emergency services. In this context, “[i]f a hospital or other medical provider believes that the amount of reimbursement it has received from a health plan is below the ‘reasonable and customary value’ of the emergency services it has provided, the hospital or provider may assert a quantum meruit claim against the plan to recover the shortfall.” (Long Beach Mem'l Med. Ctr. v. Kaiser Found. Health Plan, Inc., (2021) 71 Cal. App. 5th 323, 335.) However, Plaintiff has only pled the conclusion that the services were for an emergency. (Compl., ¶¶ 7, 14-15, 18.) Plaintiff does not plead facts that the Patient was in “danger of loss of life, or serious injury or illness.” (Health & Saf. Code, § 1317 (a).) Moreover, Plaintiff bases this theory on Cal. Code Regs., tit. 28, § 1300.71(a)(3)(B), which might require “payment of the reasonable and customary value” but would be preempted by ERISA. (Hewlett-Packard Co. v. Barnes, (9th Cir. 1978) 571 F.2d 502, 505 [ “ERISA preempts California’s Knox-Keene Act to the extent that Knox-Keene seeks to regulate ERISA-covered employee benefit plans.”); 29 U.S.C. § 1444(a) (ERISA “supersede[s] any and all State laws insofar as they may now or hereafter relate to any [ERISA plan]”].)

Accordingly, the demurrer is SUSTAINED with leave to amend.  Plaintiff has 30 days to file an amended complaint.