Judge Upinder S. Kalra, Case 22STCV19872 2023-05-02 Tentative Ruling

CASE NAME: THC – Orange County, LLC, et al. v. Local Initiative Health Authority for Los Angeles County

MOVING PARTY: Defendant Local Initiative Health Authority for Los Angeles County

RESPONDING PARTY(S): Plaintiffs KND Development 52, L.L.C. d/b/a Kindred Hospital — Baldwin Park, Southern California Specialty Care, LLC d/b/a Kindred Hospital — La Mirada d/b/a Kindred Hospital — San Gabriel Valley, THC — Orange County, LLC d/b/a Kindred Hospital — Los Angeles, and KND Real Estate 40, LLC d/b/a Kindred Hospital — Paramount

On June 17, 2022, Plaintiffs THC — Orange County, LLC d/b/a Kindred Hospital — Los Angeles, KND Development 52, L.L.C. d/b/a Kindred Hospital — Baldwin Park (“Plaintiffs”) filed a complaint against Defendant Local Initiative Health Authority for Los Angeles County dba LA Care Health Plan (“Defendant.”)

On October 11, 2022, Plaintiffs KND Development 52, L.L.C. d/b/a Kindred Hospital — Baldwin Park, Southern California Specialty Care, LLC d/b/a Kindred Hospital — La Mirada d/b/a Kindred Hospital — San Gabriel Valley, THC — Orange County, LLC d/b/a Kindred Hospital — Los Angeles, and KND Real Estate 40, LLC d/b/a Kindred Hospital — Paramount (“Plaintiffs”) filed a First Amended Complaint against Defendant Local Initiative Health Authority for Los Angeles County (“Defendant.”) The operative complaint alleges 3 causes of action: (1) Breach of Written Contract, (2) Unjust Enrichment/Constructive Trust, and (3) Declaratory Relief. Plaintiffs allege that the parties entered into agreements, the Memorandum of Understanding. Plaintiffs allege that Defendant has refused to pay Plaintiffs for the valuable hospital services that it provided to 15 Medi-Cal enrolees with insurance coverage through LA Care.

On February 23, 2023, Defendant filed a Demurrer. Plaintiffs’ Opposition was filed on April 18, 2023.

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.)

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 Bruce Beman indicates that the parties spoke but were unable to resolve the issues.

Defendant argues that the FAC does not allege a cause of action for breach of contract, specifically that there was no breach. First, Defendant argues that there was no breach because only authorized services were paid for, per the stipulation in the parties Agreement. Thus, because the medical services authorizations were denied, there was no breach. Second, the Knox-Keene Act does not allow or give rise to contract causes of action and Sections 1367 and 1367.01 of the California H&S Code are “standards” not “actionable.” Thus, Plaintiffs cannot “employ the UCL or quantum meruit (or other common law theories) because neither are viable against a public entity.” (Demurrer 8: 12-13.)

Plaintiffs argue that the FAC alleges a breach of contract claim. Specifically, the FAC states that Defendant did not pay the Insureds’ necessary care and treatment and did not comply with the Knox Keene Act. (Opp. 4: 15-18; FAC ¶¶ 230-231.) As to Defendant’s argument about authorized services, Plaintiffs argue that the FAC states that throughout the FAC, Plaintiffs allege the services were authorized. (FAC ¶¶ 54, 57, 149-152.) Plaintiffs further argue that by entering into these Agreements, Defendant owed a duty of good faith and fair dealing, which was violated by Defendants by refusing to authorize or pay for necessary care. As to the claim concerning the Knox Keene Act, Plaintiffs argue that “A claim for breach of contract based on the violation of statutory requirements incorporated into the contract is "a viable theory to support a breach of contract cause of action." See Lincoln Gen. Ins. v. Access Claims Adm 'rs, Inc., 596 F. Supp. 2d 1351, 1367 (E.D. Cal. 2009) (fact that statute did not authorize private right of action was irrelevant where plaintiff "has not brought a cause of action under the statute but rather alleges that the statute's requirements were integrated into the contract”). (Opp. 6: 11-17.)

The elements for a breach of contract cause of action are: (1) existence of contract; (2) plaintiff’s performance or excuse for nonperformance; (3) defendant’s breach (or anticipatory breach); and (4) resulting damage. (Wall Street Network, Ltd. v. N. Y. Times Co. (2008) 164 Cal.App.4th 1171, 1178.)

After a review of the FAC, the Court finds that the FAC has sufficiently alleged a breach of contract. The FAC states that the parties had entered into agreements, the Memorandum of Understanding (FAC ¶¶ 17, 228); Plaintiff performed the conditions, such as providing hospital care and treatments to the insureds (FAC ¶¶ 33, 48, 55, 75, 78, 91, 100, 109, 127, 135, 144, 150, 160, 169, 178, 187, 196, 205, 214, 223, 229); Defendant breached the agreements by failing to pay due under the agreements, failing to authorize medically necessary care as well as breached the implied covenant of good faith and fair dealing by failing to respond timely to Plaintiffs’ appeals and refusing to respond to authorization requestions (FAC ¶¶ 149-151[1], 230-231); and, as a result, Plaintiffs have been damaged by over $4 million (FAC ¶¶ 232.)

Defendant argues that the claim for unjust enrichment fails for two reasons. First, the Government Claims Act (“GCA”) precludes finding liability against a public entity based upon equitable principles. Under Government Code § 815(a), a public entity is not liable for an injury, “whether such injury arises out of act or omission of the public entity of a public employee or any other person.” Therefore, this claim is barred because “it is merely a remedy synonymous with restitution.” (Demurrer 9: 22-23.) Second, when an express agreement exist, unjust enrichment is unavailable. (Id. at 10: 8-10, citing to Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1370, “as a matter of law, an unjust enrichment claim does not lie where the parties have an enforceable express contract.”)

Plaintiffs argue that this cause of action is sufficiently alleged. Here, the FAC states that Defendant received and retained government funds “intended to ensure medical care and treatment to Medi-Cal enrollees like the Insureds.” (Opp. 6: 19-21.) Further, the FAC states that when Defendant did not pay for medical necessary care and treatment and retained the payments, Defendant was unjustly enriched at the expense of Kindred. As for the government entity immunity argument, Plaintiff argues that these immunity provisions concern “shielding public entities from having to pay money damages for torts.” (Id. at 6: 27 – 7: 2, citing City of Dinuba v. County of Tulare (2007) 41 Cal. 4th 859, 867.) Further, this is not an instance of protecting public funds, but rather a misapplication of public funds. (Opp. 7: 22-24, FAC ¶¶ 234-237.) Lastly, as to the argument about an express contract, Plaintiffs argue that a party is allowed to plead inconsistent claims in the alternative. Moreover, Defendant claims that there is no express contract, but then argues that an unjust enrichment claim cannot be valid with an express contract.

While unjust enrichment is not a cause of action, courts have stated that unjust enrichment is synonymous with restitution and allowed recovery where the plaintiff asserts a proper basis for recovering restitution.¿(See¿Durrell v. Sharp Healthcare¿(2010) 183 Cal.App.4th 1350, 1370;¿McBride v.¿Boughton¿(2004) 123 Cal.App.4th 379, 387-88.) “The elements for a claim of unjust enrichment are ‘receipt of a benefit and unjust retention of the benefit at the expense of another.’ [Citation.] ‘The theory of unjust enrichment requires one who acquires a benefit which may not justly be retained, to return either the thing or its equivalent to the aggrieved party so as not to be unjustly enriched.” (Lyles v. Sangadeo-Patel (2014) 225 Cal.App.4th 759, 769.)

First, the Court finds that the immunity argument raised by Defendant fails. As stated in Plaintiffs’ Opposition, the immunity provisions “are only concerned with shielding public entities from having to pay money damages for torts.” (City of Dinuba, supra, 41 Cal. 4th at p. 867.) The matter here does not concern money damages for torts, but rather recouping funds. As to Defendant’s claim concerning express agreements, they are correct that where the parties have an express contract, a claim for unjust enrichment is unavailable to the plaintiff. “When parties have an actual contract covering a subject, a court cannot—not even under the guise of equity jurisprudence—substitute the court's own concepts of fairness regarding that subject in place of the parties' own contract.” (California Medical Ass'n, Inc. v. Aetna U.S. Healthcare of California, Inc. (2001) 94 Cal.App.4th 151, 172.) However, as Plaintiff argues, “It is well established that “a party may plead in the alternative and may make inconsistent allegations.” (Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLC (2005) 127 Cal.App.4th 1311, 1323.) Therefore, based on the allegations in the FAC, Plaintiffs have sufficiently alleged that Defendant received the benefit, i.e. the over $4 million dollars, and retained that benefit at the expense of the Plaintiffs. (FAC ¶¶ 2, 235-238.)

Defendant argues that the FAC fails to allege an actual controversy. Plaintiff is requesting that the Court “abridge the domain of the DMHC and investigate and apparently enforce the Knox-Keene Act, an area that is within the exclusive jurisdiction of the DMHC.” (Demurrer 10: 25-27.) Additionally, Plaintiff’s request for declaratory judgment is not available “where the declaration would be an idle act or where the issues have become moot.” (Id. at 11: 6-7.) The FAC alleges, in paragraph 240, that the parties are no longer contracted.

Plaintiffs argue that the claim for declaratory relief is satisfactorily alleged. Here, Plaintiffs are requesting a declaration that “would clarify L.A. Care’s obligations and Kindred’s rights both now and in the future by confirming that L.A. Care cannot simply refuse to authorize a continued hospitalization by characterizing it as not medical necessary (or by ignoring the authorization request altogether) when the patient cannot be safely discharged.” (Opp. 9: 20-23.) This issue will continue to arise, and whether or not the parties are not contracted is irrelevant as Kindred “will continue to care for L.A. Care insureds when they are admitted with primary coverage through Medicare.” (Opp. 9: 25-27.)

For a declaratory judgment, a party must demonstrate that the action is “(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [that party’s] rights or obligations.” (Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1581). “Declaratory relief operates prospectively to declare future rights, rather than to redress past wrongs.” (County of San Diego v. State of California (2008) 164 Cal.App.4th 580, 607).

After a review of the FAC, Plaintiffs have sufficiently alleged facts for declaratory relief. The FAC states that there is a dispute as to whether LA Care can unilaterally cut off coverage, refuse to authorize hospitalization, refuse to respond to authorization requests, and cut off pay for care. (FAC ¶ 241.) Additionally, this issue is seeking to declare future rights as Plaintiffs indicate it continues to care for LA Care insureds, albeit when they have Medicare as primary coverage. (FAC ¶ 240.)

Defendant argues that it may demur to each medical claim individually since the damages are sought for 20 separate Medical Claims. Defendant initially argued that are no records of government claims for E.D., R.B. and B.H. In a since filed Notice of Withdrawal, the argument concerning failure to present government claims as it pertains to the above three members is withdrawn. As to the remaining claims, Defendant argues that the claims are untimely. The original complaint has the denial dates, but were omitted from this FAC. The dates indicate that they are untimely under Government Code §§ 905 and 910, which have a one-year statute of limitation, from the date of accrual.

Defendant also argues that Plaintiffs’ claim that Government Code § 905(e) exemption applies is invalid. First, this exemption only applies to “parties filing applications or claims for public assistance under the Welfare and Institutions Code and “claims for goods, services, and provisions rendered for or on behalf of any recipient of public assistance,” and Medical claims do not qualify (Demurrer 14: 17-21.) Second, under Government Code § 935, a public entity can enact ordinances “applying the claim presentation requirements to claims for money or damages that are excepted by section 905.” (Demurrer 15: 1-3, citing to Bullock v. City of Antioch (2022) 78 Cal.App.5th 407, 423.)

Lastly, Defendant argues that the claim that LA Care is estopped from asserting non-compliance because of its own delay fails. Under equitable estoppel, there are four elements: the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel has a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury.” (Schafer v. City of Los Angeles (2015) 237 Cal.App.4th 1250, 1261.) The FAC does not contain any allegations that they were “ignorant” of a timing issue or that LA Care made a statement that “would reasonably lead them to believe that a claim was unnecessary.” (Demurrer 15: 26 – 16: 2.)

Plaintiffs argue that the timeliness defense as it pertains to E.D2 and T.H. fail.[2] The claims were presented within a year because the damages were not realized until LA Care’s final decision about no payment was made. Kindred made multiple appeals as to E.D2 and T.H.’s claims and did not receive responses until months later, with the final denial on September 14, 2022. (FAC ¶¶ 45-46, 121, 125.) As to Defendant’s claim that the one year started when Plaintiffs were first denied, Plaintiffs argues that this is direct contradiction to the Knox Keene Act, which allows a party, such as Kindred, to pursue an internal appeals. (Opp. 12: 15-18.)

As to the exemption claim raised by Defendants, Plaintiff argues that this exemption does apply because while medical claims do not qualify, the court in Madera Community. Hospital v. County of Madera, (1984) 155 Cal.App.3d 136 states that those who are eligible for Medi-Cal are “actual recipients of public assistance.” Thus, because E.D2 and T.H. were Medi-Cal enrollees, they were recipients of public assistance under Government Code § 905(e). As for the claim under Government Code § 935, Plaintiffs argue that the policy document that Defendant seeks to have judicially noticed should not be considered “before Kindred has had the opportunity to conduct discovery into the facts and circumstances of its existence.” (Opp. 14: 12-15.) Even still, this Policy is not a “charter, ordinance, or regulation” as stated in Government Code § 935, and the exemption still applies. Plaintiffs argue that equitable estoppel is valid because Defendant repeatedly informed Kindred that it was conducting reviews of the claims, but then delayed for months. (FAC ¶¶ 42-46, 118-125.)

The Court finds that the claims raised in the FAC are timely. While Government Code § 911.2 have a one year statute of limitation from the date of accrual, under Government Code § 905 states that “there shall be presented in accordance Chapter 1 (commencing with Section 900) and Chapter 2 (commencing with Section 910) all claims for money or damages against local public entities except any of the following…(e) Applications or claims for any form of public assistance under the Welfare and Institutions Code or other provisions of law relating to public assistance programs, and claims for goods, services, provisions, or other assistance rendered for or on behalf of any recipient of any form of public assistance.” Here, the FAC states that as to E.D2 and T.H., both were enrollees of Medi-Cal. (FAC ¶¶ 37, 113.) As stated above, in Madera, the Court determined that enrollees of Medi-Cal were “recipients of public assistance.” (Madera, supra, 155 Cal.App.3d 136.) And as to Defendant’s claim for judicial notice as to the LS-009 Policy, the Court above has noted that it may take judicial notice of the document, but not the truth of document, which is what Defendant is asking the Court to do.

Demurrer is OVERRULED, as to all causes of action. Defendant is to file an Answer within 20 days of notice of this order.

[1]These paragraphs allege that the services were authorized and yet Defendant nevertheless refused to pay.)

[2] Plaintiffs stated in a footnote that the claim concerning F.S. is moot as LA Care has made payment of Kindred’s Claim.