Judge Upinder S. Kalra, Case Number: 22STCV01382, Date: 2024-01-30 Tentative Ruling

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CASE NAME: Hooman Melamed, M.D., et al. v. California Physicians’ Service dba Blue Shield of California

MOVING PARTY: Defendant California Physicians’ Service dba Blue Shield of California

RESPONDING PARTY(S): Plaintiffs Hooman Melamed, M.D., and Hooman Melamed, M.D., Inc.

1. An order sustaining the Demurrer as to all three causes of action in the SAC for failure to state facts sufficient to constitute a cause of action. CCP § 430.10(e).

2. An order sustaining the Demurrer as to the Second Cause of Action for uncertainty. CCP § 430.10(f).

3. An order striking various portions of the FAC that seek restitution and injunctive relief.

The Demurrer is Sustained without leave to amend as to all three causes of action.

On January 12, 2022, Plaintiffs Hooman Melamed, M.D. and Hooman Melamed, M.D., Inc., (“Plaintiffs”) filed a complaint against Defendant California Physicians’ Service dba Blue Shield Of California (“Defendant.”)

On March 8, 2022, Plaintiffs filed the operative First Amended Complaint. The FAC alleged five causes of action: for (1) Unlawful, Fraudulent, and Unfair Business Practices; (2) Retaliation in Violation of California Business and Professions Code § 2056; (3) Intentional Interference with Prospective Economic Advantage; (4) Negligent Interference with Prospective Economic Advantage; and (5) Willful Violation of California Reimbursement Laws. The FAC alleges that Plaintiff, an orthopedic spine surgeon, chose not to participate as a physician for defendant Blue Shield, and therefore has been an out-of-network provider for Blue Shield members and enrollees. Plaintiff has performed approximately a thousand procedures on patients who are members of Blue Shield, who then submitted claims to Blue Shield. Plaintiff alleges that

Defendant engaged in a pattern of wrongfully delaying, adjusting, and denying payments for legitimate claims.

On February 22, 2023, Plaintiffs filed a Request for Dismissal as to the 5^th cause of action, which was entered on February 23, 2023.

On April 11, 2022, Defendant filed a Demurrer. Plaintiffs’ Opposition was filed on February 22, 2023. Defendant’s Reply was filed on February 28, 2023.

On May 1, 2023, the parties stipulated to file amended demurrer papers, to address the tentative ruling issued by Department 45.

On May 8, 2023, Defendant filed a Demurrer with a Motion to Strike, which was SUSTAINED, in part, and OVERRULED, in part.

On July 18, 2023, Defendant California Physicians’ Services dba Blue Shield of California filed a Demurrer with a Motion to Strike. Plaintiff’s Opposition was filed on September 14, 2023. Defendant’s Reply was filed on September 20, 2023.

On September 28, 2023, the hearing on the Demurrer and Motion to Strike came on for hearing. After hearing oral argument from both sides, the court took the matter under submission.

On October 30, 2023, the court ruled on the submitted matter and granted leave to the parties to submit further briefing. The court vacated the submission on the matter and set a hearing for January 30, 2024.

On January 8, 2024, both parties submitted supplemental briefs in support and in opposition to the Demurrer and Motion to Strike.

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. …. The only issue involved in a demurrer hearing is whether the complaint, as it stands, unconnected with extraneous matters, states a cause of action.”¿(Hahn¿147 Cal.App.4th at 747.)

The court may, upon a motion, or at any time in its discretion, and upon terms it deems proper, strike any irrelevant, false, or improper matter inserted in any pleading. (Code Civ. Proc., § 436(a).) The court may also strike all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court. (Id., § 436(b).) The grounds for moving to strike must appear on the face of the pleading or by way of judicial notice. (Id.¿§¿437.)¿“When the defect which justifies striking a complaint is capable of cure, the court should allow leave to amend.” (Vaccaro v. Kaiman¿(1998) 63 Cal.App.4th 761, 768.)

Prior to filing a demurrer, the demurring party is required to satisfy their meet and confer obligations pursuant to Code of Civ. Proc. §430.41, and demonstrate that they so satisfied their meet and confer obligation by submitting a declaration pursuant to Code of Civ. Proc. §430.41(a)(2) & (3).¿The Declaration of John Fogarty indicates that the parties met and conferred on July 12, 2023, but were unable to resolve the issues. (Dec. Fogarty, ¶ 2.)

The court grants Defendant’s request for judicial notice as to Exhibit A and Exhibit B (Evid. Code § 452(d) and (h); See Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 37.), the court only takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal. App. 5th 389, 400.)

1. First Cause of Action – Unlawful, Fraudulent, and Unfair Business Practices

Defendant argues that the SAC does not state a claim for a violation of the UCL. Specifically, Defendant argues that the SAC alleges three categories of conduct that are the basis for the UCL claim. However, only “one could support a vested interest as needed for restitution, but Melamed now has expressly and repeatedly disavowed that he is pursuing such claims in this lawsuit.” (Demurrer 4: 16-19.) Since Plaintiff is not seeking payment of benefits, then the allegations about wrongfully denying payments are “extraneous” and thus, the basis restitution is gone. As such, Plaintiff has no vested interest in money he has not earned or has already been paid; therefore, these allegations would support damages, which are not recoverable under UCL. (Demurrer 6: 8-18.)

Plaintiff argues that this Court previously determined that the UCL was sufficiently alleged and overruled the demurrer. Plaintiff contends that Defendant is seeking a motion for reconsideration. The two reasons that that Defendant demurred to the first cause of action are (1) SAC further clarified the UCL and (2) Plaintiff Melamed made admissions. However, the “clarification” was to delete paragraphs in line with the Court’s ruling and the judicial admissions were known to the Court when it determined its ruling.[1]

Bus. & Prof. section 17200 prohibits “any unlawful, unfair or fraudulent business act or practice.” (Bus. & Prof. Code § 17200; see Clark v. Superior Court (2010) 50 Cal.4th 605, 610.) “An unlawful business practice or act is an act or practice, committed pursuant to business activity, that is at the same time forbidden by law.” (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969.) A violation of other laws is deemed independently actionable under the UCL. (See Law Offices of Mathew Higbee v. Expungement Assistance Services (2013) 214 Cal.App.4th 544, 554.) “‘Virtually any law—federal, state or local—can serve as a predicate for a section 17200 action.’” (Id. (quoting Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1335).) “A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation.” (Khoury v. Maly's of California, Inc. (1993) 14 Cal.App.4th 612, 619).

The court, on its own motion, reconsidered its prior ruling overruling the Demurrer on the first cause of action and intended to enter a new order sustaining the Demurrer because it appears to the court that the legislative history of California Business & Professions section 2056 was to codify the public policy to allow for the tort of wrongful termination of employees or independent contractors.

Defendant contends that the legislative history of Bus. & Prof. section 2056 is limited to the employment and/or contractual context and does not seek to regulate out-of-network providers with no employment or contractual relationship. Plaintiff argues that Bus. & Prof. section 2056 is not limited to wrongful termination, employment or other contractual claims because it does not express a contractual, employment or termination requirement and it states “no person” meaning it applies to everybody and “otherwise” means in any other way. Plaintiff also argues that because section 2056 is unambiguous, the court need not consider the legislative history or other extrinsic aids.

Bus. & Prof. section 2056(a) states: “The purpose of this section is to provide protection against retaliation for physicians who advocate for medically appropriate health care for their patients pursuant to Wickline v. State of California 192 Cal.App.3d 1630.”[2]

“It is the public policy of the State of California that a physician and surgeon be encouraged to advocate for medically appropriate health care for his or her patients. For purposes of this section, ‘to advocate for medically appropriate health care’ means to appeal a payor's decision to deny payment for a service pursuant to the reasonable grievance or appeal procedure established by a medical group, independent practice association, preferred provider organization, foundation, hospital medical staff and governing body, or payer, or to protest a decision, policy, or practice that the physician, consistent with that degree of learning and skill ordinarily possessed by reputable physicians practicing according to the applicable legal standard of care, reasonably believes impairs the physician's ability to provide medically appropriate health care to his or her patients.”

“This section shall not be construed to prohibit a payer from making a determination not to pay for a particular medical treatment or service, or to prohibit a medical group, independent practice association, preferred provider organization, foundation, hospital medical staff, hospital governing body acting pursuant to Section 809.05, or payer from enforcing reasonable peer review or utilization review protocols or determining whether a physician has complied with those protocols.”

“[S]ection 2056 should be construed as its text reads: to provide that the termination or penalization of a physician and surgeon ‘principally for advocating for medically appropriate healthcare . . . violates the public policy of this state,’ whether or not the advocacy protests a cost-containment decision.” (Khajavi, supra, at p. 51.)

At the October 30, 2023 hearing the Court noted that it was going to revisit the purpose of section 2056. The Court indicated the legislative history evinced the legislature’s intent to pronounce public policy in order to elevate a wrongful discharge of an employe or contractor is into a tort.[3] Absent a legislative finding that the conduct violated public policy, the employment action would remain a simple contract claim and not a tort. The Court clearly articulated this view and granted Plaintiff leave to further brief this issue. (See Reporter’s Notes of October 30. 2023 hearing.) Plaintiff’s recent filings have not convinced the Court to alter the Court’s interpretation.

b. Does the “or otherwise penalize” language suggest non-employment or non-contractual retaliation to form the basis for a cause of action under Section 2056?

The Court tasked Defendant to brief the “or otherwise” language. Defendant maintains that this phrase does not expand the scope of the statute to cover non-employment or non-contractual physicians but contemplates the refusal to grant or extend clinical privileges to a physician, removing a physician from an emergency call panel, or removing a physician from a payer’s preferred provider network. Defendant contends this comports to the doctrine of ejusdem generis. (See Armin v. Riverside Commun. Hosp. (2016) 5 Cal.App.5th 810, 834-835.)

“The application and rendering by any person of a decision to terminate an employment or other contractual relationship with, or otherwise penalize, a physician and surgeon principally for advocating for medically appropriate health care consistent with that degree of learning and skill ordinarily possessed by reputable physicians practicing according to the applicable legal standard of care violates the public policy of this state. No person shall terminate, retaliate against, or otherwise penalize a physician and surgeon for that advocacy, nor shall any person prohibit, restrict, or in any way discourage a physician and surgeon from communicating to a patient information in furtherance of medically appropriate health care.”

Plaintiff does not directly address the “or otherwise” language in Section 2056, but reiterates his argument that Section 2056 provides a private cause of action outside of the employment context. The Court finds the position advanced by Defendant not only is reasonable, but is also consistent with the overall statutory basis for Section 2056. Plaintiff’s failure to directly address any other interpretation as reasonable is telling. As such, the Court concludes that the “or otherwise” language does not expand the scope of protection beyond employee or contractual employment relationships. Rather, subdivision (c) only delineates additional conduct that is prohibited against these enumerated workers.

In sum, Section 2056 pronounces public policy in order to expand tort damages for adverse employment actions for employees or those with a contractual relationship. Plaintiff admittedly has neither an employee-employer relationship nor a contractual relationship with Defendant. As such, the Court finds, as a matter of law, that Section 2056 has no application to this controversy between Plaintiff and Defendant.

2. Second Cause of Action – Intentional Interference with Prospective Economic Advantage

Defendant argues that this cause of action fails. First, the Court should not make an unprecedented new law permitting tort liability, which would be directly contrary to the Knox-Keene Act. Second, the SAC does not allege any actual disruptions.[4] On supplemental briefing, Defendant contends that Plaintiff has not alleged “but for” proximate causation to support this cause of action and has unambiguously alleged that Defendant treats all out-of-network providers the same. Defendant additionally contends that the sham pleading doctrine prevents Plaintiff from walking back his allegations to sidestep this issue.

Plaintiff argues that this cause of action is sufficiently alleged and the one element that was lacking in the FAC – actual disruption – has been sufficiently alleged. The SAC states that Defendant disrupted the relationships between Plaintiff and the patients by making false statements, requiring Plaintiffs to respond to duplicative records, and fraudulently seeking reimbursement of payments which caused patients to cease care. (SAC ¶ 20(a-c).) In supplemental briefing, Plaintiffs argue that they may make inconsistent allegations, that the sham pleading doctrine does not apply, and that Plaintiffs have otherwise stated a cause of action under other legal theories should Section 2056 fail.

“Intentional interference with prospective economic advantage has five elements: (1) the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff; (2) the defendant’s knowledge of the relationship; (3) intentionally wrongful acts designed to disrupt the relationship; (4) actual disruption of the relationship; and (5) economic harm proximately caused by the defendant’s action.” (Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505, 512.) There can be no recovery unless the plaintiff shows that, except for the tortious interference, there was a reasonable probability that the contract or profit would have been obtained. (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1164 (Korea Supply Co.).)

Previously, this court determined that the cause of action for intentional interference failed as it did not allege sufficient facts of an actual disruption as the language was conclusory. The Court indicated to the parties that it intended to grant the Demurrer as to the second cause of action alleging Intentional Interference with Prospective Economic Advantage because Plaintiff’s cannot satisfy the “proximate cause”” element as set forth in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4t5h 1134, 1165-1166, because of the allegation in paragraph 11 of the SAC.

At the October 30, 2023 hearing the Court noted a more fundamental defect in the SAC. The Court pointed out that Plaintiff not only failed to allege facts to indicate that “but for” the conduct of Defendant, they would have received income, Paragraph 11 of the SAC completely undermines this position. The Court had a robust discussion on this issue (See reporter’s notes) and granted Plaintiff an extended opportunity to brief the issue. The Court has reviewed the updated contentions submitted by Plaintiff in their latest filings, but remains unconvinced. It remains clear to the Court that as alleged, Paragraph 11 of the SAC, states quite emphatically that Defendants’ “retaliatory” conduct is founded upon Plaintiff’s “refusa[al] to contract with Blue Shield as an In-Network physician or provider.”(SAC ¶ 11.) Plaintiff unabashedly alleges that Defendant’s practice has always been and continues to be to retaliate against Plaintiff and all Out-of-Network providers because of their status as Out-of-Network providers. In other words, regardless of whether Plaintiff complained, Defendant would nonetheless engage in this conduct because of Plaintiff’s status as an Out-of-Network provider. Therefore, even if Plaintiff remained silent and did not complain, Plaintiff still would not have obtained the complained about lost income as long as Plaintiff remained an Out-of-Network provider. While acknowledging the plain meaning of Paragraph 11, Plaintiff urges this Court to ignore the import of Paragraph 11. The Court is aware of the obligation to liberally read pleadings. Nevertheless, the Court cannot ignore this allegation that has remained in three versions of the pleadings and whose truth Plaintiff still maintains.[5] Accordingly, Plaintiff has failed to sufficiently allege that he did not receive the expected income for these medical services “but for” Defendant’s conduct.

3. Third Cause of Action – Negligent Interference with Prospective Economic Advantage

Defendant makes the same arguments as above for intentional interference as for negligent interference. Additionally, Defendant argues that Defendant cannot allege a duty to support a negligence claim.

Plaintiff argues that the SAC sufficiently alleges a duty, which the Court previously found was insufficiently alleged in the FAC. Specifically, in paragraph 34, Plaintiffs allege that a duty of care existed through statutes - Bus. & Prof. Section 2056(a)-(c). Additionally, a relationship existed between Plaintiffs and Defendant due to the “foreseeability of harm suffered by Plaintiffs.” (Opp. 12: 11 – 13: 6.)

“The tort of negligent interference with prospective economic advantage is established where a plaintiff demonstrates that (1) an economic relationship existed between the plaintiff and a third party which contained a reasonably probable future economic benefit or advantage to plaintiff; (2) the defendant knew of the existence of the relationship and was aware or should have been aware that if it did not act with due care its actions would interfere with this relationship and cause plaintiff to lose in whole or in part the probable future economic benefit or advantage of the relationship; (3) the defendant was negligent; and (4) such negligence caused damage to plaintiff in that the relationship was actually interfered with or disrupted and plaintiff lost in whole or in part the economic benefits or advantage reasonably expected from the relationship.” (Venhaus v. Shultz (2007) 155 Cal.App.4th 1072, 1078.)

Previously, this Court determined that Plaintiff did not sufficiently allege any basis for a duty that would allow for a negligence cause of action.[6] Plaintiff’s reliance on section 2056 fails as a matter of law for the reasons articulated above and in the Court’s May 31, 2023 ruling.[7] Moreover, the conclusionary statement “foreseeability of harm” does not plead facts sufficient to establish a new tort duty. Nonetheless, since the proximate cause is also an element of the third cause of action for Negligent Interference with Prospective Economic Advantage the Demurrer for that cause of action would also necessarily be sustained.

Leave to amend should be liberally granted if there is a reasonable possibility an amendment could cure the defect. (County of Santa Clara v. Superior Court (2022) 77 Cal.App.5th 1018,1035.) The Plaintiff has the burden of demonstrating that leave to amend should be granted, and that the defects can be cured by amendment. (“Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.” Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Here, Plaintiff has not offered any explanation on how he could cure the defects. Moreover, it does not appear to the Court that there is any way Plaintiff can remedy the defects identified herein.

Pursuant to CCP § 581d, this written order of dismissal constitutes a judgment and shall be effective for all purposes. The Clerk shall note this judgment in the register of actions in this case.

[1] The Opposition filed to the FAC, and the assertions made at the hearing on the demurrer to the FAC.

[2] Wickline concerned a patient harmed by a third-party payor (there, Medi-Cal) implementing a cost containment program that affected the treating physician’s medical judgment. (Wickline v. State of California (1986) 192 Cal.App.3d 1630, 1632-1633.) The physicians did not challenge the Medi-Cal Consultant’s reduction of a request for an additional 8 days of in hospital care to 4 days. (Id. at pp. 1644-1645.) The Court ultimately found the treating physicians liable for the plaintiff’s harm because, even though Medi-Cal only approved a certain number of additional days for in-hospital treatment, there were no facts that Medi-Cal’s authorization corrupted the treating physician’s medical judgment. (Id. at pp. 1635-1648 [“While we recognize, realistically, that cost consciousness has become a permanent feature of the health care system, it is essential that cost limitation programs not be permitted to corrupt medical judgment.”]) There is no discussion of out-of-network providers in Wickline.

[3] “Existing case law also provides that to have a viable cause of action for wrongful employment termination on the basis of a violation of public policy, that the public policy must be clearly and statutorily defined.” (California Bill Analysis, A.B. 1676 Sen., 7/12/1993, 8/17/1993, 8/23/1993, emphasis added.) “According to the author, the bill is needed to codify state public policy . . . .” (California Bill Analysis, A.B. 3390 Assem., 5/03/1994, emphasis added.) “This bill is sponsored by the California Psychological Association to statutorily establish that it is the public policy of this state that health care practitioners advocate for appropriate health care for their patients, and that penalizing a health care practitioner (e.g., terminating their employment) principally for such advocacy violates public policy. (California Bill Analysis, A.B. 3390 Sen., 6/27/1994, emphasis added.)

[4] Defendant also argues that Plaintiffs did not allege that they had an assignment from their patients. (Demurrer 9:2-3.) However, the SAC does allege such an assignment. (SAC ¶ 13(l).)

[5]If Plaintiff sought to abandon this allegation at this stage, Plaintiff would run afoul of the sham pleading doctrine.

[6] “The tort of negligent interference with economic relationship arises only when the defendant owes the plaintiff a duty of care.” (LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 348.)

[7] Parenthetically, the Court abandons its previous pronouncement that “duty is not a required element for the cause of action for intentional interference with a prospective economic advantage.” Duty, it appears, is always required for tort liability. (See Reporter’s Notes of October 30. 2023 hearing.)