238 Cal. App. 4th 124
Cal. Ct. App.2015Background
- Plaintiff Corey Hambrick (a former MGI employee and patient) sued Healthcare Partners entities (MGI, HCP-LLC, DaVita Healthcare Partners) asserting class claims under the UCL (Bus. & Prof. Code §17200), FAL (§17500), and common‑law fraudulent concealment. She alleged HCP operated as an unlicensed Knox‑Keene health care service plan by assuming institutional (hospital) financial risk via capitation arrangements, directing care to HCP‑contract hospitals/physicians, and thereby delaying/denying higher‑quality care.
- Hambrick paid premiums to an unidentified licensed health plan; HCP allegedly received capitation from that plan and assumed hospital risk without a Knox‑Keene license, profiting and avoiding regulatory oversight and reserve requirements.
- The trial court sustained demurrers without leave to amend, invoking judicial abstention for the statutory UCL and FAL claims (concluding the licensing/risk characterization question is a regulatory/policy matter for the DMHC) and dismissed the action with prejudice; it also dismissed the fraud/ concealment claim via demurrer (failure to plead duty, reliance, causation) and awarded defendants costs.
- On appeal Hambrick argued HCP’s assumed “global risk” transformed it into a health care service plan requiring Knox‑Keene licensure; she relied in part on a Financial Solvency Standards Board (FSSB) memorandum discussing “global risk.”
- The Court of Appeal: (1) affirmed abstention as to UCL and FAL claims because determining when a risk‑bearing medical group becomes a licensed plan involves complex economic/regulatory policy that DMHC should decide; (2) held abstention improper as to the fraud claim because it sought damages, but affirmed dismissal of the fraud claim for failure to plead a duty to disclose and because plaintiff failed to show amendment could cure the defect; and (3) affirmed award of costs to defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether HCP’s assumption of institutional (hospital) capitation/global risk makes it a Knox‑Keene “health care service plan” requiring a license | Hambrick: HCP assumed global/institutional risk (via capitation) and thus functioned as an unlicensed health plan subject to Knox‑Keene mandates | HCP: characterization requires regulatory, fact‑intensive analysis; many risk‑shifting arrangements are lawful; only DMHC should determine licensing/risk threshold | Court: DMHC (not trial courts) should decide the regulatory/policy question; abstention appropriate for UCL/FAL claims raising this issue |
| Whether trial court properly invoked judicial abstention for UCL and FAL claims | Hambrick: courts can (and should) perform the judicial function of statutory/contract interpretation; FSSB memo and §1349 indicate licensing rules exist | HCP: resolution requires complex economic/regulatory determinations (risk levels, capital/solvency, capitation structures) better handled by DMHC | Court: Abstention proper—issue involves complex policy and primary jurisdiction of DMHC; alternative remedies (DMHC enforcement/cease‑and‑desist, restitution) exist |
| Whether fraudulent concealment claim survives demurrer (duty to disclose, reliance, causation) | Hambrick: HCP had duty to disclose its unlicensed risk assumption and financial arrangements because they affected treatment choices | HCP: No duty to disclose financial arrangements; informed‑consent doctrine (physician duty) doesn’t apply to non‑physician risk‑bearing org; reliance/causation insufficiently pled | Court: Abstention not available for damage claim, but fraud claim fails—plaintiff did not plead a legal duty to disclose; dismissal affirmed; leave to amend properly denied (plaintiff failed to show amendable defect) |
| Whether defendants were prevailing parties entitled to costs after dismissal on abstention grounds | Hambrick: dismissal on procedural abstention grounds is not a merits victory; defendants not prevailing parties | HCP: Dismissal with prejudice entitles defendants to costs under CCP §1032 | Court: Defendants prevailing parties under §1032; award of costs affirmed |
Key Cases Cited
- Arce v. Kaiser Foundation Health Plan, Inc., 181 Cal.App.4th 471 (Cal. Ct. App.) (abstention analysis where judicial resolution performs ordinary judicial functions)
- Blue Cross of California, Inc. v. Superior Court, 180 Cal.App.4th 1237 (Cal. Ct. App.) (declining abstention where court performs routine judicial functions enforcing UCL/FAL)
- Desert Healthcare Dist. v. PacifiCare FHP, Inc., 94 Cal.App.4th 781 (Cal. Ct. App.) (abstention appropriate where remedy would require courts to resolve complex capitation/risk allocation issues)
- Klein v. Chevron U.S.A., Inc., 202 Cal.App.4th 1342 (Cal. Ct. App.) (abstention generally requires alternative administrative remedy)
- Alvarado v. Selma Convalescent Hospital, 153 Cal.App.4th 1292 (Cal. Ct. App.) (abstention appropriate where adjudication would require courts to assume regulatory role over healthcare standards)
- Samura v. Kaiser Foundation Health Plan, Inc., 17 Cal.App.4th 1284 (Cal. Ct. App.) (courts cannot assume regulatory power entrusted to administrative agency)
- Zhang v. Superior Court, 57 Cal.4th 364 (Cal.) (UCL borrows other laws; scope and limits of restitution/injunctive relief under UCL)
- Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134 (Cal.) (disgorgement beyond restitution not available under UCL)