Judge Randolph M. Hammock, Case 21STCV32210 2023-01-18 Tentative Ruling

Judge: Randolph M. Hammock, Case: 21STCV32210, Date: 2023-01-18 Tentative Ruling

RESPONDING PARTY(S): Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Healthcare, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Sovereign Health of Texas, Inc.; Shreya Health of Florida, Inc.; and Shreya Health of Arizona, Inc.

Plaintiffs Dual Diagnosis Treatment Center, Inc., Satya Health of California, Inc., Adeona Healthcare, Inc., Sovereign Health of Florida, Inc., Sovereign Health of Phoenix, Inc., Sovereign Health of Texas, Inc., Shreya Health of Florida, Inc., and Shreya Health of Arizona, Inc. (collectively, “Sovereign”), operated mental health and substance abuse treatment facilities around the United States. Defendants Centene Corp., Michael Neidorff (an individual), Health Net Life Insurance Co., Managed Health Network, Inc., (collectively, “Health Net”) and Optum Services, Inc. (“Optum”), are health insurance providers.

Plaintiffs allege that Health Net instituted a policy in 2014 of paying a higher-than-average rate on out-of-network mental health facility claims—a policy allegedly put in place to increase its market share. Plaintiffs allege that the plan backfired after Defendants experienced a dramatic increase in the number of claims, which caused them to incur substantial liabilities. In the latter half of 2015, Defendants allegedly created a plan to cut their losses, by “conspir[ing] to create and implement a systematic campaign of targeting and refusing to pay or underpaying certain claims to stem the financial bleeding from Health Net’s PPO policies… by arbitrarily reducing or eliminating payments to out-of-network substance use disorder providers.” (FAC ¶ 43.) Plaintiffs claim to be a victim of this scheme.

Then, in late 2016, Defendants allegedly initiated meetings with law enforcement and made false allegations against Plaintiffs in an attempt to trigger criminal proceedings against them—a move that if successful would discredit Plaintiffs or put them out of business, and in effect, let Defendants off the hook for payments owed to Plaintiffs. Based on Defendants alleged misrepresentations to law enforcement, the FBI obtained search warrants and on June 17, 2017, the FBI and other agencies raided six Sovereign locations across Southern California.

As a result, Plaintiffs allegedly lost patients, employees, and bank accounts, and received a blow to their reputations. Ultimately, Plaintiffs were forced to close all nine of their facilities. The Complaint includes causes of action for (1) Intentional Interference with Prospective Economic Advantage, (2) Violation of Unfair Competition Law, and (3) Slander Per Se.

Defendant Health Net previously demurred to each cause of action in the Complaint. The court sustained Health Net’s demurrer as to the First and Third Causes of Action and overruled the Demurrer as to the Second Cause of Action. The court gave Plaintiffs leave to amend each cause of action.

Because this court previously found that the Complaint could not be “reasonably interpreted to plead that the cause of action accrued at some point after May 5, 2018,” the claim was untimely under the two-year limitations period. (See 06/08/2022 Ruling, p. 9.) That was because Plaintiffs alleged the raid occurred in June 2017, and that “[i]mmediately thereafter, Plaintiffs’ bank forced them to close their accounts.” (Compl. ¶ 83.) Moreover, Plaintiff alleged “in the weeks following the raid, at least sixty-eight patients left Sovereign facilities,…numerous Sovereign employees resigned or sought medical leave…[and] [a] number of entities who had historically referred patients to Sovereign, including universities, hospitals, specialty care providers, specialists, and other treatment providers, suspended their referrals.” (Id. 85.)(Emphasis added.) Importantly, the court came to this conclusion, at least in part, based on the fact that Plaintiff had failed to plead delayed discovery or some other equitable tolling doctrine.

In the FAC, Plaintiff’s again allege that beginning in the latter half of 2015, Defendants “conspired to create and implement a systematic campaign of targeting and refusing to pay or underpaying certain claims to stem the financial bleeding from Health Net’s PPO policies… by arbitrarily reducing or eliminating payments to out-of-network substance use disorder providers.” (FAC ¶ 43.) This plan involved “a blanket policy of denying and underpaying claims for certain types of behavioral health services.” (Id. ¶ 44.) “[B]y November 2015, Health Net’s payments to California substance use disorder treatment centers became sporadic.” (Id. at ¶ 45.) Then, in January 2016, “Defendants devised a fraudulent scheme to advance a variety of false accusations against Plaintiffs and other out-of-network substance abuse providers.” (Id. at ¶ 47.) This included placing Plaintiffs on a “a special investigation unit” watchlist “as a pretext for refusing to pay claims.” (Id. at ¶ 48.)

On January 8, 2016, Defendants “sent a boiler plate form letter to more than 1,000 treatment centers designed to delay the processing of claims as well as to delay the disclosure to shareholders of Health Net’s financial losses, and to hide the blanket policy of refusing to pay certain claims and the policy of indiscriminately rerouting claims to SIU.” (Id. at ¶ 50.) The letter “imposed unlawful and onerous burdens on providers regarding claim submission, requesting extensive and unusual amounts of documentation in a short time frame (15 days). The letter also stated that Health Net was suspending payment on claims previously submitted and that Health Net was investigating alleged fraudulent practices.” (Id.) In effect, the letter “punish[ed] providers and insureds for acting within the terms of Health Net’s policies.” (Id. at ¶ 52.)

Defendants also went to the FBI with false fraud allegations using information “that they knew was not accurate, well-founded, or supported by evidence.” (Id. at ¶ 79.) “On the morning of June 13, 2017, based on the misrepresentations presented by Defendants, more than 100 armed guards from the FBI, U.S. Department of Health and Human Services, IRS, DHCS, and several other agencies, simultaneously executed search warrants at six Sovereign locations across southern California and the home of Dr. Tonmoy Sharma.” (Id. at ¶ 81.)

Thus, to “disrupt the relationship between Plaintiffs and Health Net policyholders,” Defendants “’pended’ and referred all claims submitted by Plaintiffs to Defendants’ Special Investigations Unit”; “sent Plaintiffs letters stating that payment of claims was contingent on submission of extensive documentation and attestation of certain facts, many of which were irrelevant to the processing of the claims”; “refuse[d] to pay claims based on the clear policy language”; “falsely accused Plaintiffs of illegal conduct, damaging the good name and reputation of Plaintiffs”; and “reached out to other insurance companies [and] shared their false accusations.” (FAC ¶ 100.)

As an initial matter, Plaintiffs again argue that the filing date for purposes of the statute of limitations is governed not by the date of filing in the Central District of California case before Judge Blumenfeld (May 5, 2020), but rather, by November 1, 2018, which was the date of the filing of the filing of a complaint in yet another case in the Central District, that being Sovereign Asset Management, Inc. v. Health Net Life Insurance Company, et al., No. 2:18-cv-09360 FMO-DFM (C.D., Cal., Nov. 1, 2018). (See P’s RJN, Exh. 2.) They rely on the relation-back doctrine. The doctrine states that “where an amendment is sought after the statute of limitations has run, the amended complaint will be deemed filed as of the date of the original complaint provided recovery is sought in both pleadings on the same general set of facts....” (Lamont v. Wolfe (1983) 142 Cal. App. 3d 375, 378.)

In ruling on the previous demurrer, the court found that Plaintiffs had “present[ed] no authority invoking the relation-back doctrine in a scenario with facts similar to this.” (See 06/08/2022 Ruling.) The same is true now, “where there are material differences in the two cases and the parties in those cases.” (Health Net Reply, 2: 22-23.)

Accordingly, this court again finds the proper relation-back date is May 5, 2020, the date these claims were brought in the federal case (before Judge Blumenfeld) which involved the same Plaintiffs and Defendants as the instant case. Generally speaking, then, based on a two-year statute of limitations, any intentional interference claim based on injury occurring before May 5, 2018, would be time-barred.

Faced with this fact, Plaintiffs now attempt to plead and invoke the delayed discovery rule. Under the common law “discovery rule,” a cause of action’s accrual date may be “delayed until the plaintiff is aware of her injury” and its cause. (Id.) “Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her.... [T]he limitations period begins once the plaintiff ‘has notice or information of circumstances to put a reasonable person on inquiry.’ A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim; that is a process contemplated by pretrial discovery. Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit on her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.” (Bergstein v. Stroock & Stroock & Lavan LLP (2015) 236 Cal. App. 4th 793, 818 [cleaned up].) “In order to invoke [delayed discovery] to the statute of limitations, the plaintiff must specifically plead facts which show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” (Saliter v. Pierce Bros. Mortuaries (1978) 81 Cal. App. 3d 292, 297.)

Although the alleged misconduct occurred largely in 2015, 2016, and 2017, Plaintiffs argue their First Cause of Action “did not accrue until after May 5, 2018 at the earliest when documents were produced in the First Lawsuit by Health Net revealing specific types of wrongful conduct that amounted to tort liability under an intentional interference claim.” (Opp. 1: 27-28.) They argue their new allegations attempt to show “that it discovered the factual bases for its claims after May 5, 2018,” and “that for the first time what Plaintiffs learned from the First Lawsuit’s discovery period amounted to specific acts of wrongdoing beyond the mere fact that Defendants were engaged in some general conduct of interference between Plaintiffs and their Health Net insured patients.” (Opp. 8: 17-22.) At this point, “Plaintiffs’ view of Health Net’s conduct transmuted from solely interference with its relationships to its patients but into articulable wrongful conduct amounting to tort liability under an intentional interference claim.” (Opp. 10: 21-24.) To support this delayed discovery, Plaintiffs allege, in relevant part:

In document productions disclosed to Sovereign in the Separate Litigation on November 27, 2018, Sovereign obtained access to communications Health Net and its counsel had with attorneys for the DOI starting in January 2016.” (FAC ¶ 85.) “It was not until Sovereign was able to analyze this private correspondence between Health Net’s counsel and the DOI that it was able to determine a nexus between Health Net’s conduct directly aimed at influencing a public media campaign bent on destroying Sovereign’s reputation. (Id. ¶ 86.)

In document productions finally disclosed to Sovereign in the Separate Litigation on September 11, 2018, Sovereign learned for the first time that Health Net, Centene and their counsel made these unsubstantiated accusations of criminal and fraudulent conduct by Sovereign through email communications and in-person meetings with various federal and state law enforcement agencies during and between November and December 2016. Sovereign learned that Health Net, Centene and their counsel met with the District Attorneys of Los Angeles and Orange County, as well as the California Department of Insurance, all of whom refused to act on Defendants’ allegations. (FAC ¶ 70.)

For the first time in discovery produced in the Separate Litigation on September 11, 2018, Sovereign learned that Defendants presented this Power Point to the FBI and the U.S. Attorney in Orange County. Sovereign did not obtain access to the documents, information and accusations leveled by Health Net and Centene against Sovereign to the FBI until November 22, 2019, when a document production in the Separate Litigation disclosed the ‘binder’ given to the FBI. (Id. ¶ 71.)

For the first time in discovery produced in the Separate Litigation on October 24, 2019, Sovereign learned that Lee Arian, VP of Advisory Services for Optum, previously worked as an assistant U.S. attorney. Sovereign learned that Optum, through Arian, contracted with former FBI agent, Mark Botello, to conduct various interviews of former Sovereign employees and patients. (Id. ¶ 78.)

It was not until Sovereign was able to analyze this private correspondence between Health Net’s counsel and the DOI that it was able to determine a nexus between Health Net’s conduct directly aimed at influencing a public media campaign bent on destroying Sovereign’s reputation. (Id. ¶ 86.)

Defendants, on the other hand, contend this version of events—and that Plaintiffs did not learn of the alleged interference until late 2018—is contradicted by Plaintiffs’ June 2016 lawsuit, in which Plaintiffs brought “substantially similar claims” against Defendants. (Health Net’s Dem. 5: 4.) Moreover, they argue that any “doubt that may have remained vanished in February 2017, when Health Net accused Plaintiffs of fraud” in their Cross-Complaint. (Id. 5: 6-8.) Similarly, Optum argues Plaintiffs “allege no facts to show they were reasonably diligent in 2016, 2017, or early 2018 in looking into their alleged injury or its cause,” and the new allegations “at most, suggest that Plaintiffs did not discover all of the facts supporting their claims” until Defendants produced documents in the related lawsuit. (Optum’s Dem. 12: 23-27 [emphasis in original].) Thus, “these new allegations explain when certain underlying facts were clarified for Plaintiffs, but do not change the timeline of when Plaintiffs had sufficient notice of their claim so as to trigger the claim’s accrual.” (Id. 13: 9-11.)

Here, Plaintiffs’ Complaint in the Keeny litigation, and their subsequent lawsuit alleging wrongdoing against the FBI agents involved in the raid (RJN 01/10/2023, Exh. B), certainly create critical questions as to what Plaintiff’s knew or should have known, and when they knew it. In many aspects, this is at odds with Plaintiffs’ First Amended Complaint, which pleads that Plaintiffs did not and could not discover the interference at issue until Defendants’ produced documents in the Keeny litigation.

However, as a general rule “[a] demurrer is simply not the appropriate procedure for ‘determining the truth of disputed facts,’ [and] judicial notice of matters upon demurrer will be dispositive only in those instances where there is not or cannot be a factual dispute concerning that which is sought to be judicially noticed.” (Cruz v. Cnty. of Los Angeles (1985) 173 Cal. App. 3d 1131, 1134 [emphasis added; cleaned up].)

Hence, for purposes of these demurrers, the bottom-line issue is whether Plaintiffs have adequately demonstrated a factual dispute as to when they discovered particular facts, for pleadings purposes, and as such, they have adequately invoked and pled delayed discovery? The short answer to this question is “No.”

Here, Plaintiffs’ last-ditch attempt to invoke delayed discovery is flatly at odds with Plaintiffs’ other allegations in the FAC, as well as those matters of which this court may take judicial notice. When considering the allegations in the Complaint of events occurring in 2015, 2016, and 2017—coupled with Plaintiffs’ asserting substantially similar claims in the June 2016 lawsuit, and then again in the suit against agents of the FBI in 2017—these developments at minimum gave Plaintiffs “notice or information of circumstances to put a reasonable person on inquiry” of Defendants’ alleged interference. (Bergstein, supra, 236 Cal. App. 4th at 818.) This would start the commencement of the statute of limitations, at the latest, in 2016.

Prior to May of 2018, it is undeniable that Plaintiffs “suspect[ed] or should [have] suspect[ed] that [their] injury” was caused by Defendants’ wrongdoing. (Id.) Put simply, even if Plaintiffs were “not be aware of the specific ‘facts’ necessary to establish the claim” they bring now, Plaintiffs undoubtedly had a “suspicion of wrongdoing, and therefore an incentive to sue.” (Id.) Indeed, the earlier lawsuits all but affirm they had that suspicion.

Given the ruling on the previous demurrer, as well as the instant ruling on the newly alleged delayed discovery theory, no such possibility of a successful amendment appears to exist. As such, leave to amend is denied. Be that as it may, Plaintiffs will be given an opportunity to demonstrate this possibility at the hearing, consistent with these rulings.

Defendants argue the UCL claim fails because Plaintiffs are not entitled to injunctive relief or restitution. Despite its broad applicability, “[i]njunctive relief and restitution are the only remedies available under the UCL.” (Esparza v. Safeway, Inc. (2019) 36 Cal. App. 5th 42, 53.) Thus, “[a] UCL claim must be based on the existence of harm supporting injunctive relief or restitution.” (Id.) Whether a practice violates the section “is generally a question of fact which requires ‘consideration and weighing of evidence from both sides’ and which usually cannot be made on demurrer.” [Citation]. (Id.)

Defendants argue that restitution is also unavailable for two reasons. First, Defendants contend the doctrine of unclean hands precludes them from obtaining relief. Defendants refer to the jury verdict entered in the litigation before Judge Keeny, in which a jury found that Sovereign engaged in fraud with respect two one or more “of the patients or claims at issue in Health Net’s cross-complaint.” (Id., p. 4.) (Health Net’s RJN, Exh A.) Defendants also argue that “because the jury found that Health Net properly denied Plaintiffs’ insurance claims,” Plaintiffs cannot receive restitution. “Plaintiffs cannot re-litigate in this case whether they are owed more for the insurance claims they submitted to Health Net,” Defendants argue, “because the doctrine of collateral estoppel prevents them from doing so.” (Health Net Dem. 8: 1-3.)

In opposition, Plaintiffs contend “it is far too premature to consider the July 2022 jury verdict final and conclusive and by extension premature to use the verdict as a basis to dismiss this lawsuit at the pleading stage.” (Opp. 15: 19-21.) As it stands now, some issues in the Keeny litigation remaining pending, and no final judgment has been entered on the jury verdict. (Plaintiffs’ RJN, Exh. 7.) Plaintiffs also contend they still can, and will, appeal that verdict. The conclusion of that litigation still remains to be seen.

Plaintiffs are correct that “a judgment that is on appeal is not final for purposes of applying the doctrines of claim and issue preclusion.” (Boblitt v. Boblitt (2010) 190 Cal. App. 4th 603, 606.) For that reason, this court cannot at this time judge the preclusive nature of the July 2022 jury verdict. Moreover, accepting all allegations as true, this court also again cannot find that Plaintiffs are not entitled to restitution as a matter of law. Plaintiffs allege that “Defendants have been unjustly enriched” and “seek restitution in an amount to be proven at trial.” (FAC 109.) For pleadings purposes at this time, Plaintiffs have stated a claim for violation of the UCL.

Defendants argue the slander claim is also untimely. This Court agrees. The statute of limitations for slander is one year. (CCP § 340(c).) Defendants argue that “[b]ased on Plaintiffs’ own allegations and Health Net’s cross-complaint, it is clear that they knew, as early as 2016, and no later than February 2017, that Health Net was accusing them of fraud.” (Health Net Dem. 5: 25-28.)

Plaintiffs allege that “[i]n or about December 2016, Defendants communicated and/or met with representatives from other health insurance carriers, including Anthem and Cigna. In those communications and/or meetings, Defendants made statements that falsely accused Plaintiffs of illegal and unethical business conduct.” (FAC ¶ 114.) Moreover, Defendants and their representatives made allegedly slanderous statements toward Plaintiffs via email, plead in detail in the FAC. (Id. ¶¶ 113, 115, 116, 117, 118, 120, 121.)

For the same reasons discussed in the demurrer to First Cause of Action for interference, Plaintiff has not adequately pled delayed discovery. This court has now determined as a matter of law that Plaintiffs knew or should have known of any of the actionable slanderous statements prior to the date of delayed discovery, as pled in the FAC.

Defendant Optum previously demurred to each cause of action in the Complaint. The court sustained Optum’s demurrer in its entirety. The First Amended Complaint now asserts causes of action against Optum for (1) Intentional Interference with Prospective Economic Advantage and (2) Slander. Plaintiffs have not repleaded their UCL claim against Optum. Defendant now demurs to all causes of action in which it is named. Each is addressed in turn.

As Health Net did, Defendant Optum here contends the interference claim is barred by the two-year statute of limitations, and that Plaintiffs cannot rely on delayed discovery. That is because the new allegations “at most, suggest that Plaintiffs did not discover all of the facts supporting their claims” until discovery in the related litigation, and “allege no facts to show they were reasonably diligent in 2016, 2017, or early 2018 in looking into their alleged injury or its cause.” (Optum Dem. 12: 23-27.)

Plaintiffs invoke delayed discovery of the facts as to Optum in the same manner they do against the other Defendants. Plaintiffs allege that “Sovereign was not aware of Optum’s involvement in the scheme, along with Health Net and Centene, to interfere with Sovereign’s business until documents, including internal emails and other materials generated by Health Net, Optum and Centene from its multi-year investigation of Sovereign were finally produced by Health Net in separate litigation (“Separate Litigation”) filed by Sovereign against Health Net and pending since June 2016.” (FAC ¶ 57.)

Like Health Net, Defendant Optum argues the slander claim is time-barred. Defendant goes further to say that “[e]ven if the Court were to apply the discovery rule, it would still not save Plaintiffs’ slander claim from the one-year statute of limitations.” (Optum Dem. 17: 5-6.) As discussed supra, this Court agrees.

Sovereign learned in the August 29, 2018 deposition of Health Net’s former Director of Special Investigations, Matthew Ciganek, that in or around May 2016, Optum Vice President, Lee Arian, emailed Get Real Recovery’s owners confirming that Get Real (another substance use and addiction treatment provider in Southern California) would be getting removed from Health Net’s pre-payment review of pended (indefinitely unpaid) claims in exchange for providing Lee Arian with information about other substance use treatment providers in the area to help further Optum’s investigation of Sovereign and other such providers.

First, Optum argues that the alleged email to Get Real Recovery “lacks specificity and is not slanderous.” (Optum Dem. 18: 12-13.) That is because “Plaintiffs merely allege that Optum emailed Get Real Recovery and asked it to provide information,” but do “not specify that Optum was asking for information about Plaintiffs, [and] do[] not state that Optum said anything about Plaintiffs’ immoral, illegal, or unethical conduct.” (Id. 18: 13-16.)

Under Civil Code § 46, “slander is a false and unprivileged publication, orally uttered, and also communications by radio or any mechanical or other means which: (1) [c]harges any person with crime, or with having been indicted, convicted, or punished for crime;…[or] (3) [t]ends directly to injure him in respect to his office, profession, trade or business, either by imputing to him general disqualification in those respects which the office or other occupation peculiarly requires, or by imputing something with reference to his office, profession, trade, or business that has a natural tendency to lessen its profits.”

Here, the only slander allegation directly attributed to Optum is the email to Get Real Recovery (above), in which Optum stated that Get Real Recovery “would be getting removed from Health Net’s pre-payment review of pended (indefinitely unpaid) claims in exchange for providing [Optum] with information about other substance use treatment providers in the area to help further Optum’s investigation of Sovereign and other such providers.” (FAC ¶ 112.)

It is difficult to see how this email falsely accuses Plaintiffs of illegal conduct or otherwise falsely harms their business in a way to constitute slander. To the extend Plaintiffs may argue there was more to the story (or email), such an allegation is absent from the pleading, and therefore cannot support the cause of action. (See Ellenberger v. Espinosa (1994) 30 Cal. App. 4th 943, 951 [pleading for slander per se was defective because it “d[id] not allege either the specific words or the substance of [the] statements ... but instead merely allege[d] the conclusions of the pleader that statements were made.”].)

Accordingly, Defendants’ Demurrer to the Third Cause of Action is SUSTAINED WITHOUT LEAVE. Generally speaking, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) Plaintiffs have now attempted and failed twice to allege any slanderous statements attributed to Defendant Optum. Thus, no leave to amend is given for these reasons also.