Judge: Mark E. Windham, Case: 22STLC08599, Date: 2023-05-17 Tentative Ruling

Case Number: 22STLC08599    Hearing Date: May 17, 2023    Dept: 26

Nissanoff v. Unitedhealthcare Ins. Co., et al.

DEMURRER

(CCP §§ 430.31, et seq.)

TENTATIVE RULING:

Defendant Unitedhealthcare Insurance Company’s Demurrer to the First Amended Complaint is SUSTAINED WITHOUT LEAVE TO AMEND.

ANALYSIS:

Plaintiff Advanced Orthopedic Center, Inc. (“Plaintiff”) brought this action for quantum meruit and breach of implied contract against Defendant Unified Life Insurance Company (“Defendant”) on December 27, 2022. After Defendant filed an demurrer to the complaint, Plaintiff filed a first amended complaint on February 14, 2023, adding six more causes of action.

On April 17, 2023, Defendant filed the instant demurrer to the first amended complaint. Plaintiff filed an opposition on April 24, 2023 and Defendant replied on May 10, 2023.

Discussion

The first amended complaint alleges causes of action for (1) quantum meruit, (2) breach of implied contract, (3) breach of oral contract, (4) breach of implied covenant of good faith and fair dealing, (5) unjust enrichment, (6) declaratory relief, (7) recovery of payment for services rendered, and (8) interference with prospective economic advantage. Defendants demur to each cause of action for failure to allege facts sufficient to state a cause of action. (Citing Code Civ. Proc., § 430.10, subd. (e).) The Demurrer is accompanied by a meet and confer declaration in compliance with Code of Civil Procedure section 430.41. (Motion, Holmer Decl., ¶¶2-3.)

Request for Judicial Notice

Defendant requests that the Court take judicial notice of

(1)   a Certificate of Authority issued by the California Department of Insurance (“CDI”) to Defendant, which bears Department of Insurance certificate number 08775 and is dated April 28, 2010;

(2)   a PDF printout of the from the California Department of Insurance’s (“CDI”) public website showing the CDI’s Company Profile of UnitedHealthcare Insurance Company, available at: https://interactive.web.insurance.ca.gov/apex_extprd/f?p=144:6:::NO:RP,6:P6_COMPANY_ID:5 878;

(3)   a PDF printout of the form the California Department of Managed Health Care’s (“DMHC”) public website showing the portion of DMHC’s California Department of Managed Healthcare Plan Directory alphabetically listing all DMHC-licensed health care services plans with names beginning “Sequoia Health Plan, Inc.” through “Western Health Advantage,” available at: https://wpso.dmhc.ca.gov/Dashboard/SearchHealthPlan.aspx; and

(4)   that portion of the DMHC’s website shown in Exhibit C and publicly available at https://wpso.dmhc.ca.gov/Dashboard/SearchHealthPlan.aspx

The request is granted pursuant to Cal. Evidence Code section 452, subdivision (d).

Plaintiff’s request for judicial notice of (1) unpublished decision in People v. Martello; and (2) multiple unpublished prior rulings against Defendant stating that it is regulated by the DMHC and not the DOI, are denied. Likewise, Defendant’ supplemental request for judicial notice of rulings in unpublished cases is denied. Judicial notice of unpublished decisions is only permitted when “relevant under the doctrine of law of the case, res judicata or collateral estoppel.” (In re Bush (2008) 161 Cal.App.4th 133, 146 [citing Cal. Rules of Court rule 8.1115(b)(1)].)

Allegations in the First Amended Complaint

The First Amended Complaint alleges that Plaintiff is a surgeon who, as an assignee of his medical corporation, Advanced Orthopedic Center (“AOC”), purchased and acquired its accounts receivable. (FAC, ¶¶2-3.) Plaintiff and AOC are in the business of providing emergent medical care to members, subscribers, and insureds of Defendant and their physicians became entitled to reimbursement, payment, or indemnification from Defendant. (Id. at ¶¶1-5.) Defendant is licensed to and does business as a health care plan insurer and/or medical health plan administrator. (Id. at ¶6.) Defendant is regulated by the Department of Managed Health Care (“DMHC”) DMHC and/or the California Department of Insurance (“CDI”). (Ibid.)

Plaintiff further alleges the following: Defendant failed to make payments due and owing to Plaintiff’s physicians for emergent medical care provided to Defendant’s insured, members, policyholders, certificate-holders, or patients who were otherwise covered by policies or certificates issued and underwritten by Defendant. (Id. at ¶9.) Each of the patients to whom this care was provided entered into a valid insurance agreement with Defendant and for which Defendant was provided valuable premium payments and other consideration. (Id. at ¶¶10-11.) The physicians provided high quality medical care to the patients and billed usual, customary and reasonable charges for the care. (Id. at ¶13.) The physicians were “out-of-network providers” who did not have contracts with Defendant at the time the emergent care was provided. (Id. at ¶14.) Unlike in-network providers who are reimbursed at a discounted rate by the health plan, out-of-network providers are entitled to receive payment based on their total charges for the services. (Id. at ¶¶15-16.) The medical services provided by the physicians was for emergent or post-stabilization care that they were legally required to provide to the patients. (Id. at ¶17.) Defendant paid for these services in amounts that were less than the physicians’ usual, customary, or reasonable rate and were less than the physicians’ billed charges. (Id. at ¶18.) Physicians expected to be reimbursed at their usual, customary, or reasonable rate but Defendant has refused to do so. (Id. at ¶¶20-21.) In fact, the rates at which Defendant reimbursed Plaintiff were arbitrary, capricious, and inexplicable. (Id. at ¶23.) The physicians properly determine their rates based on the DMHC’s regulations, which provide a methodology to define the amount health care service plans like Defendant are to pay out-of-network providers. (Id. at ¶25.) Instead, Defendant determined the payment amount using flawed databases that it manipulates to underpay out-of-network providers. (Id. at ¶¶26-28.) Therefore, Defendant has breached its obligations to reimburse the physicians for the out-of-network services at usual, customary, and reasonable rates. (Id. at ¶29.) This underpayment also harms the physicians’ relationship with their patients when the patients discover they will not be fully reimbursed. (Id. at ¶32.)

Demurrer to Entire First Amended Complaint

Defendant first demurs to the entire First Amended Complaint on the grounds that each cause of action is based on erroneous application of the Knox-Keene Act, which only applies to “health care service plans.” Defendant argues that it is an insurer licensed and regulated by the DOI, not a health care service plan, which would be regulated by the DHCM. The First Amended Complaint alleges that regulations by the DHCM determine the physicians’ proper reimbursement rate, as set forth at Cal. Code of Regulations, section 1300.71, subdivision (a)(3)(B). (See FAC, ¶25.) Defendant demurs on the grounds that it does not meet the definition of a health care service plan as set forth in those same DHCM regulations. (Citing Health and Safety Code, § 1262.8, subd. (m); 28 Cal. Code Regs., § 1300.71, subd. (a)(12).) Under the Health and Safety Code, a health care service plan is defined as “[a]ny person who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for those services, in return for a prepaid or periodic charge paid by or on behalf of the subscribers or enrollees.” (Cal. Health & Safety Code, § 1345, subd. (f)(1).) The DMHC regulations define a health care service plan as “a licensed health care service plan and its contracted claims processing organization.” (Cal. Code Regs., § 1300.71, subd. (a)(12).) In other words, a health care service plan under these statutory definitions is licensed by the DMHC.

Defendant contends that it cannot be regulated by the DMHC because it is regulated by the CDI. The Court of Appeals has “recognized that the Legislature has elected to subject insurers and health care service plans to distinct regulatory regimes. Insurers are regulated by the Insurance Code and the Insurance Commissioner. Health care service plans fall under the jurisdiction of the Department of Managed Care and the Knox–Keene Act.” (Smith v. PacifiCare Behavioral Health of California, Inc. (2001) 93 Cal.App.4th 139, 159 [citing Williams v. California Physicians’ Service (1999) 72 Cal.App.4th 722, 729].) Therefore, if Defendant is regulated by the CDI, it cannot be regulated by the DMHC and the Knox-Keene Act.

To demonstrate that it is an insurer regulated by the CDI, Defendant points to its certificate of authority, issued by the CDI. (Opp., RJN, Exh A.) It also points to the DMHC’s directory of all licensed Knox-Keene health care service plans, which does not include the name Unitedhealthcare Insurance Company. (Id. at Exh. C.) Plaintiff’s opposition does not address either document to explain how they do not prove Defendant is regulated by the DOI and not by the DMHC. Also, the opposition argument regarding Defendant’s status as a health care service plan is confusing. It appears to be Defendant’s contention that plans that exclusively sell health insurance, such as HMOs, must be regulated by the DMHC. (Opp., p. 8:9-13.) Even if Plaintiff cited authority to support this proposition, which they do not, Plaintiff cites to no allegation that Defendant is an HMO or otherwise only sells health insurance.

Plaintiff alternatively argues that whether Defendant is a health care services provider is a question of fact that cannot be resolved on demurrer. However, Plaintiff is required to plead the facts that support their contention that Defendant is a health care service provider regulated by the DMHC because that is the basis for all the causes of action. That the First Amended Complaint simply alleges Defendant is a health care service provider is not a fact that the Court must accept as true on demurrer. (290 Division (EAT), LLC v. City and County of San Francisco (2022) 86 Cal.App.5th 439, 452 [“‘For the purpose of testing the sufficiency of the cause of action, the demurrer admits the truth of all material facts properly pleaded (i.e., all ultimate facts alleged, but not contentions, deductions or conclusions of fact or law).’ (Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022) ¶ 7:43.”].) On demurrer, the Court cannot accept as true the conclusory allegation that Defendant is a health care services provider regulated by the DMHC.

Finally, it is Plaintiff’s contention that Defendant is collaterally estopped from arguing it is not a health care service provider because this issue has been resolved in an earlier small claims action against it. A smalls claims judgment against a defendant, however, does not have collateral estoppel effect in a subsequent superior court action brought by the plaintiff regarding the same issue. The Court of Appeals explained the public policy reasons for this rule: “refusing to accord collateral estoppel effect to issues decided against defendants is consistent with the policy of fostering ‘speedy and final’ adjudication in small claims matters. (ERA–Trotter Girouard Assoc. v. Superior Court, supra, 50 Cal.App.4th at p. 1856, 58 Cal.Rptr.2d 381.) A contrary rule would encourage small claims defendants to appeal small claims judgments entered against them, no matter how small, in order to guard against issue preclusion in a subsequent superior court action.” (Pitzen v. Superior Court (2004) 120 Cal.App.4th 1374, 1386.) Therefore, Defendant is not barred from arguing that it is not a health care service plan in this action.

Based on the foregoing, the Demurrer to the entire First Amended Complaint is sustained.

1st Cause of Action for Quantum Meruit; 5th Cause of Action for Unjust Enrichment; 7th Cause of Action for Recovery of Payment for Services Rendered

Additionally, Defendant demurs to the equitable causes of action on the grounds that there are no allegations the medical services rendered by Plaintiff’s physicians were at Defendant’s request or for its benefit.

The elements of a cause of action for quantum meruit are “(1) the plaintiff acted pursuant to ‘an explicit or implicit request for the services’ by the defendant, and (2) the services conferred a benefit on the defendant.” (Port Medical Wellness, Inc. v. Connecticut General Life Insurance Company (2018) 24 Cal.App.5th 153, 180 [citing Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 249].) Said alternatively, the party “must show the circumstances were such that ‘the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made.’” (Chodos v. Borman (2014) 227 Cal.App.4th 76, 96 [citing Estate of Mumford (1916) 173 Cal. 511, 523].) Similarly, the common count for services rendered must allege (1) work performed at the request of defendant; (2) defendant promised to pay for them; and (3) defendant is indebted to plaintiff in a certain sum. (Evans v. Zeigler (1949) 91 Cal.App.2d 226, 230.)

The First Amended Complaint’s allegations of the parties’ expectations regarding payment for the medical services rendered arise under the Knox-Keene Act and the DMHC’s regulations. (See FAC, ¶¶17-21.) Neither the First Amended Complaint nor the opposition include facts showing that Plaintiff’s expectation for payment at the “then-current, usual, customary, and reasonable rate” arise from some other basis for which Defendant is responsible, i.e., a request by Defendant. In support of the opposition, Plaintiff cites to Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, for the proposition that there is an exception to the requirements of quantum meruit based on the provision of emergency services. Bell, however, is inapposite because it applies to health care service plans within the meaning of the Knox-Keene Act. (Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 213.) As discussed above, Plaintiff has not alleged that Defendant is a health care service plan governed by the Knox-Keene Act. Plaintiff also argues that the holding of Bell should be extended to insurers regulated by the CDI because the Court of Appeals ruled that “there is nothing in section 1371.4 or in the Act generally to preclude a private action under the UCL or at common law on a quantum meruit theory.” (Id. at 216.) Correspondingly, Plaintiff argues that nothing in the Insurance Code bars a physician from seeking quantum meruit recovery against Defendant. The cases upon which Bell relies, however, demonstrate the difference with this case. Bell relies on Coast Plaza Doctors Hospital v. UHP Healthcare (2002) 105 Cal.App.4th 693, which points out that the Knox-Keene Act expressly states: “The Knox–Keene Act itself contemplates that a health care plan may be held liable under theories based on other law.” (Coast Plaza Doctors Hospital v. UHP Healthcare (2002) 105 Cal.App.4th 693, 706.) Plaintiff cites to no authority that holds the same for quantum meruit claims brought in the alternative to insurers governed by the Insurance Code.

Finally, Defendant argues that allowing recovery under quantum meruit would frustrate the statute that does govern the rate at which its is obligated to repay Plaintiff: Health and Safety Code section 1317.2a, subdivision (d). This statute provides that “the liability of a third-party payor which has contracted with health care providers for the provision of these emergency services shall be set by the terms of that contract.” (Health & Safe. Code, § 1317.2a, subd. (d). In opposition, Plaintiff relies on a separate part of the statute that only applies to transfers between hospitals, and is not applicable to the alleged medical services at issue in this action. Plaintiff has not shown that these medical services are not subject to the part of section 1317.2a, subdivision (a) cited by the demurrer. Therefore, there is no emergency services exception to the elements of quantum meruit in this action and Plaintiff must allege both elements but fails to do so.

There is a split of authority in California court regarding whether unjust enrichment is a cause of action. (See Ghirardo v. Antonioli (1996) 14 Cal.4th 39, 50, 52, 53-55 [recognizing split in authority]; compare Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370 [“ ‘[T]here is no cause of action in California for unjust enrichment’ ”] with Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769).] This Court follows the line of cases holding that unjust enrichment is synonymous with restitution, which can be sought as a remedy for various causes of action, instead of as a separate cause of action. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 231.)

2nd Cause of Action for Breach of Implied Contract; 3rd Cause of Action for Breach of Oral Contract; 4th Cause of Action for Breach of Implied Covenant of Good Faith and Fair Dealing

“[A]n implied-in-law contract or quasi-contract is not based on the intention of the parties, but arises from a legal obligation that is imposed on the defendant.” (Unilab Corp. v. Angeles-IPA (2016) 244 Cal.App.4th 622, 639.) The elements are: (1) Defendant used for its benefit property of plaintiff; (2) in such manner and under circumstances that the law will impose a duty of compensation therefore. (Weitzenkorn v. Lesser (1953) 40 Cal.2d 778, 794.) The second cause of action again arises from Defendant’s alleged obligation to reimburse as a health care service plan under the Knox-Keene Act. (FAC, ¶44.) No other basis for the obligation is alleged.

The third and fourth causes of action require the elements of an express contract, which include mutual assent to the terms of the agreement. (See Unilab Corp. v. Angels-IPA (2016) 244 Cal. App. 4th 622, 638.) As Defendant points out, the First Amended Complaint does not allege that the parties mutually agreed to the rate of payment. In opposition, Plaintiff does not address this missing element, thereby conceding that the contract causes of action are insufficiently alleged.

8th Cause of Action for Interference with Prospective Economic Advantage

In order to prove a claim for intentional interference with prospective economic advantage, a plaintiff has the burden of proving five elements: (1) an economic relationship between plaintiff and a third party, with the probability of future economic benefit to the plaintiff; (2) defendant's knowledge of the relationship; (3) an intentional act by the defendant, designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the defendant's wrongful act, including an intentional act by the defendant that is designed to disrupt the relationship between the plaintiff and a third party. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153–1154, 131 Cal.Rptr.2d 29, 63 P.3d 937.) The plaintiff must also prove that the interference was wrongful, independent of its interfering character. (Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 392–393, 45 Cal.Rptr.2d 436, 902 P.2d 740.) “[A]n act is independently wrongful if it is unlawful, that is, if it is proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard.” (Korea Supply Co., supra, 29 Cal.4th at p. 1159, 131 Cal.Rptr.2d 29, 63 P.3d 937.)

(Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 944.) The First Amended Complaint alleges that Defendant acted wrongfully by unilaterally determining the rates to be paid for the medical services that were below the usual, customary and reasonable rate. (FAC, ¶89.) Again, because this allegedly wrongful act is premised on a violation of the Knox-Keene Act and DMHC’s regulations, the Court does not accept the allegation as true on demurrer.

9th Cause of Action for Declaratory Relief

A cause of action for declaratory relief requires allegations of “a probable future controversy relating to the legal rights and duties of the parties.” (Dominguez v. Bonta (2022) 87 Cal.App.5th 389, 418.) For the reasons discussed herein, Plaintiff has not alleged a present or future controversy regarding the rates Defendant is obligated to pay for the subject medical services provided.

Leave to Amend

Leave to amend must be allowed where there is a reasonable possibility of successful amendment but the burden is on the complainant to show the Court that a pleading can be amended successfully. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) Plaintiff’s opposition does not show how the First Amended Complaint, which relies entirely on the Knox-Keene Act and DMHC regulations, can be amended to state a cause of action against Plaintiff. Accordingly, leave to amend is denied.

Conclusion

DEFENDANT UNITEDHEALTHCARE INSURANCE COMPANY’S DEMURRER TO THE FIRST AMENDED COMPLAINT IS SUSTAINED WITHOUT LEAVE TO AMEND.

Moving party to give notice.