71 Cal.App.5th 323
Cal. Ct. App.2021Background
- Long Beach Memorial and Orange Coast Memorial (the hospitals) provided emergency care to Kaiser enrollees after Kaiser allowed managed-care contracts to lapse. From Oct 2015–Oct 2017 the hospitals billed $31,007,982; Kaiser reimbursed $16,524,537 (53.2%).
- Hospitals sued Kaiser asserting quantum meruit (statutory reimbursement shortfall under Knox–Keene), an intentional-tort theory for systematic underpayment seeking punitive damages, and a UCL claim seeking restitution and an injunction to stop future underpayments.
- Trial court granted summary adjudication dismissing the intentional-tort and the UCL injunctive-relief theories; a three-day jury trial then found Kaiser had paid at least the reasonable and customary value ($16,524,537).
- Kaiser sought costs (~$229,904); the trial court denied all costs. Both sides appealed (hospitals appealed judgment; Kaiser cross-appealed denial of costs).
- Court of Appeal: affirmed judgment for Kaiser (no new tort, UCL injunction improper, jury instruction proper), reversed the categorical denial of costs and remanded for an item-by-item cost ruling; Kaiser awarded costs on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a new intentional tort exists for intentionally underpaying statutory "reasonable and customary" emergency reimbursements (allowing punitive damages) | Hospitals: plan’s systematic underpayment is tortious and supports punitive damages | Kaiser: no new tort; quantum meruit (and regulatory scheme) is adequate and economic/ policy reasons counsel against tort expansion | No. Court refused to recognize a new tort—policy, regulatory comprehensiveness, economic-loss concerns, risk of abusive punitive claims, and adequacy of quantum meruit. |
| Whether plaintiff may obtain an injunction under the UCL to stop future underpayments | Hospitals: UCL injunction is necessary to prevent future statutory violations | Kaiser: injunctive relief would be unworkable and vague because reasonable value cannot be known until adjudicated | Partially no. Injunctive relief is unavailable (too vague/impossible to enforce). Restitution under UCL was erroneously dismissed but is duplicative of quantum meruit; error harmless. |
| Validity of quantum meruit jury instruction defining "reasonable and customary value" as what a hypothetical willing buyer/seller would pay | Hospitals: instruction improper because it uses a hypothetical market and allows rejecting prior transactions | Kaiser: instruction consistent with market-value/quantum-meruit law | Instruction upheld. "Hypothetical willing buyer/seller" standard aligns with fair-market-value jurisprudence; jury may weigh transactions. |
| Whether trial court properly denied Kaiser costs in toto despite Kaiser being a prevailing party | Kaiser: as prevailing defendant where neither side obtained relief, costs are statutory right; trial court erred | Hospitals: various objections to specific cost items and argued prevailing-party status contested | Court erred to deny costs categorically. Reversed and remanded for consideration of hospitals’ specific objections to cost items; appellate costs awarded to Kaiser. |
Key Cases Cited
- Prospect Medical Group, Inc. v. Northridge Emergency Medical Group, 45 Cal.4th 497 (recognition of quantum meruit remedy under Knox–Keene)
- Centinela Freeman Emergency Medical Assn. v. Health Net of California, 1 Cal.5th 994 (limiting tort duties under Knox–Keene to negligent delegation to insolvent risk-bearing entities)
- Children’s Hospital Central California v. Blue Cross of California, 226 Cal.App.4th 1260 ("reasonable and customary value" = fair market value; willing buyer/willing seller standard)
- Biakanja v. Irving, 49 Cal.2d 647 (factors for recognizing new tort duties)
- Rowland v. Christian, 69 Cal.2d 108 (factors and policy considerations in duty analysis)
- Cedars-Sinai Medical Center v. Superior Court, 18 Cal.4th 1 (judicial caution in creating new commercial torts)
- Sargon Enterprises, Inc. v. University of Southern California, 55 Cal.4th 747 (trial court gatekeeper role for expert testimony; exclude opinions with excessive analytical gaps)
- Foley v. Interactive Data Corp., 47 Cal.3d 654 (courts should defer major policy-economic adjustments to the legislature)
- Simon v. San Paolo U.S. Holding Co., Inc., 35 Cal.4th 1159 (limits and considerations for punitive damages ratios)