*1 Dist., July Div. B035652. Sеcond Seven. 1989.] [No. BECK,
JOHN Plaintiff and Appellant, INTERNATIONAL, INC., al., et AMERICAN HEALTH GROUP Defendants and Respondents.
Counsel Plaintiff and Appellant. A. Rogers and Randolph
Potter & Reed *4 Martin, Weiner, Greines, Canter, Foxx, Bruce E. Dubrow & Harrington, Richland, for Defendants and Pamela Victorine Alan G. Martin Stein & and Respondents.
Opinion Plaintiff, John Beck, M.D., dis from judgment
LILLIE, appeals P. J. trial court sustained entered after the amended complaint his first missing International, defendants, Inc. Health Group American the demurrer of Inc., Palm- business as doing Health Group, and Palmdale (Health Group), leave to amend. Center without (Hospital), Medical Hospital dale
Facts contract, bad faith for breach of damages defendants for Plaintiff sued contract, good covenant of implied a breach of the existence of denial of the an interference with negligent intentional and fair dealing, faith and an recovery was based on these theories of Each of relationship. economic the medical was to act as whereby plaintiff, psychiatrist, contract alleged Hospital. at defendant for mental health services director first of action. The five causes amended contained The first is the Group Defendant Health contract) alleged: (breach cause of action in the a financial interest with Hosрital an affiliate” of defendant “parent was an times each defendant alleged At all Hospital. of the profitability of such agency the scope and each acted within of the other agent Hospital and the May plaintiff the acts On alleged. performing At all times plaintiff drafted the Hospital.1 contract entered into written with the contract. in accordance and able to ready, willing perform stood the Health Group, letter from plaintiff July Hospital, On it. As a and repudiated not the contract perform notice that it would gave sustained plaintiff breach of contract Hospital’s result of the proximate damages. general special allegations causes of action ensuing incorporated
Each of the (denial existence of cause of action cause of action. The second first and the third cause of cause) probable in bad faith and without were dealing) faith and fair covenant of (breach implied good action defendants, (inten- cause of action while the fourth against directed both and the fifth cause of action economic relаtionship) tional interference with were directed against interference with economic (negligent relationship) Health Group. alleged incorporated copy con point At this the first cause of action reference writing letter pleading. The attached was in the form of a tract which was attached to the Hospital from the and read: “May Beck, “John M.D. S, 1220 East Avenue Suite J
Palmdale, CA 93550
“Dear John: many pleasure agreement after these months of dis- “It is a to draft the outline of our future agreement, general psychiatric Hospital Medical Center. The cussion for a unit at Palmdale International, you prepared Group to be the Medical Direc- to be American Health is you prepare corporation. require Mental in the This will to Clinical tor for Health Services help Psychologists hospital practice Hospital at Medical Center. You will for- for a Palmdale policies participate Mental the Mental Health Committee. mulate Health and on contract, five-year you admitting privileges “During maintain active the term of this must you your along Psychiatrists psychiatric patients аnd will be allowed admit with other and to pay Psychologists open psychiatric corporate in unit. The contract will Clinical this adult you Compensation charges general psychiatric patients. the all to room and board 10% Rev, agreement. the The contract of Gross for room and board for each month of 10% 60-day non-performance. will have a cancellation clause for letter, you sign copy general understanding agreement, “If a I ask that a of this this is of the drafting When we have might Corporate that I for the of a contract. so forward it to Counsel draft, it, completed operating and unit in hopefully we will discuss and shall have contract very the near future. “Sincerely,
/s/ “Reid Anderson /s/_ Beck, M.D.” “Executive Director “John changes made and additions portions The underscored of the letter denote handwritten Hospital. plaintiff the and initialed and the executive director of following each of action on the generally Defendants demurred to cause no contract as shown the binding, there was enforceable grounds: (1) the amended incorporated to and into first language writing attached contract, if the is writing and such constituted contract complaint; to admit illegal plaintiff patients that it allows his psychiatric at 10 the room board compensation percent and fixes his Hospital at the violation charges general psychiatric patients Hospital, all Business 650. and Professions Code section to as to all
The trial court sustained demurrer without leave amend the no rela- grounds causes of action on the there was contractual “any of law economic benefit to tionship prospective plain- as a mattеr plaintiff’s tiff is too claims.” speculative support first This Judgment complaint. ap- was entered amended dismissing peal followed.
Discussion I construing writing contends the trial court erred in Plaintiff judicial demurrer because of a written instrument interpretation only parties present after the have had extrinsic proper opportunity evidence meaning intent of bearing upon writing. In cites & E. v. G. W. support of this contention Gas Co. Pacific Co. 442 P.2d Drayage
Thomas etc. 69 Cal.2d 1373], stated: “The test of Supreme A.L.R.3d wherein the Court of a in- admissibility meaning of extrinsic evidence to written exрlain *6 it court strument is not whether to the to be appears plain unambiguous face, meaning on its but whether the evidence is relevant to a prove offered reasonably to which the of the instrument is language susceptible. [Cita- determination A rule that limit the of the of a meaning would tions.] [fl] merely written to its four corners because it seems to the court instrument deny to be clear and would either the relevance of the inten- unambiguous, stability degree tion a verbal presuppose precision . . . . . our has not . a language meaning writing attained. [fl] [T]he *. . . can found in thе of all circum- only interpretation light stances reveal the in used the The that sense which writer words. exclusion evidence such because merely circumstances parol regarding easily can lead to the the words do not reader appear ambiguous that was intended. meaning attribution to a written instrument of never . . . . Accordingly, rational interpreta- [Citations omitted.]’ [Citations.] [fl]
tion at least a of all requires preliminary consideration credible evidence offered to the intention of the prove parties. Such evidence [Citations.] testimony inсludes as to the ‘circumstances surrounding making . . . agreement object, nature and including subject matter the writ- . . ing .’so that the court can in itself the same situation in which the ‘place parties found themselves at the time of contracting.’ (69 Cal.2d [Citations.]” 37-40, fn. at pp. omitted.) notes,
As plaintiff these have been principles to set aside the trial applied court’s of a sustaining demurrer based the court’s interpretation written instrument attached to and into the incorporated complaint. (South Farms, ern Land Co. v. Westlake (1987) Inc. 188 Cal.App.3d Pacific 815-817 794]; Shaw v. Metro-Goldwyn-Mayer, Inс. (1974) [233 However, 598-599 Cal.Rptr. 617].) as the court ac case, in knowledged the Southern Land this result only obtains Pacific where the plaintiff alleges the which he meaning ascribes to an ambiguous writing attached to and incorporated into the complaint. (188 Cal.App.3d “ at ‘. . . p. 817.) It is perfectly to set out a proper contract in haec verba. case, uncertain, inBut such if the contract is must pleader put some ” definite construction on it averment.’ v. (Connell Zaid 788, 795 Cal.Rptr. 371], quoting Durkee Cota Cal. P. 5].)
Plaintiff’s first amended does complaint allege not his interpretation оf the attached and incorporated writing, save the conclusional allegation it contract of the parties. Accordingly, the following principles govern the trial court’s review of the in writing ruling on the demurrer: “ ‘Ordinarily, a written contract is sufficiently if it is set pleaded out full or its terms alleged to their . . . according legal effect. But if the instru ment is ambiguous, must pleader allege the he meaning ascribes to it. Where a written contract is attachment pleaded [Citations.]’ [Citation.] to and incorporation complaint, where the fails allege that the terms of the contract have any a court special meaning, will con whether, strue the language of the contract on its face to determine aas law, matter of reasonably contract is subject to a construction sufficient to sustain a cause of action for breach.” v. Sutter (Hillsman Community Hospitals (1984) 749-750 fn. Cal.Rptr. 605], omitted.) This rule applicable on demurrer “is a variation on the simply ‘ *7 well-recognized theme that “It is . . . solely judicial a function to interpret a written instrument unless the interpretation credibility turns the of upon ’ Assn, extrinsic evidence.” (California Highway Patrolmen [Citаtions.]” of v. 352, Department Personnel Admin. 185 (1986) 361 Cal.App.3d [229 of 729].) Cal.Rptr.
1562 a of the merely copy incorporated
The amended first reference, Plaintiff did not leaving it to for itself. writing by speak attached that subject is writing ambiguous interpretation the allege that light of the follow Accordingly, language it is a we construe its contract. ing principles.2 an merely agree final or writing agreement
“Whether a constitutes a the intention of the ment make an agreement depends primarily upon be a construc In the of this must determined ambiguity absence parties. v. 163 (1958) a Chiodo (Smissaert tion of the instrument taken as whole.” 827, “Preliminary or an 98].) nеgotiations 830 P.2d Cal.App.2d [330 the functional of a negotiations equivalent for future are not agreement valid, ‘A to enter into subsisting willingness manifestation agreement. if it is addressed knows or has is not an offer to whom bargain person it does not intend to conclude person making reason to know that he of assent.’ bargain until has made a further manifestation [Citation.]” 38, v. 202 59 (Kruse (1988) Cal.Rptr. Bank America Cal.App.3d [248 Thus, 217].) understanding parties where it is of the between the part to be reduced to writing signed the terms of their contract are be in manner agreed upon the assent to its terms must evidenced parties, v. (Duran it or contract. Duran binding completed or does not become 176, v. 497]; 150 180 Frankenheimer (1983) Cal.Rptr. Cal.App.3d [197 101, Cal.Rptr. 636]; Frankenheimer 231 108-109 (1964) Cal.App.2d [41 406]; 360 P.2d Forgeron (1957) Inc. v. Hansen 149 Cal.App.2d [308 112, 116 P.2d v. Neal 72 (1945) Store Inc. Properties, Cal.App.2d The of a instrument are under- 38].) generally words written Marina, Bay v. ordinary (Salton stood in their sense. Inc. popular Irrigation Dist. Imperial (1985) Cal.Rptr. instrument, by the not 839].) objective The intent as evidenced words of intent, subjective (Market Ins. parties’ governs interpretation. Corp. our 751].) v. Ins. Integrity (1987) Co. 188 Cal.App.3d is controlling outward manifestation or assent expression “[T]he [cita . . . means is ‘a matter of tion], and what the an language [instrument] any for the and not controlled in sense what either interpretation courts . to be. . .’ thought intended its meaning [Citation.]” P.2d Utilities Co. Wheeler (Citizens 763].) “It is a to draft the begins: pleasure The letter under consideration ” . . agreement. (Italics added.) outlining our . After
outline of future credibility writing interpretation Because the trial does not turn court’s by the trial but must make our own extrinsic evidence we are not bound court’s construction Dispensers independent interpretation. (Gerdlung v. International Electronic Cal.Rptr. 279].) 270 [235 *8 terms of the proposed agreement the writer of the letter asks to plaintiff sign it “if this a general in order that the understanding agreement,” Hospital may “forward it to Counsel a con- Corporate drafting (Italics draft, tract.” added.) The letter concludes: “When we have a we will it, discuss shall have a hopefully contract and completed operating unit very sense, near (Italics future.” Taken in added.) ordinary their words of the letter manifest an intention of the that no binding contract would come into until the being terms of the letter were embodied in a formal contract to be drafted by corporate counsel. Assignment an drafting attorney evidences an expectation the terms set forth in the letter were subject to his approval.3 Even after counsel drafted a contract the letter contemplated further negotiations by its statement that “when we draft, have a we will discuss it.” By the letter signing assented to plaintiff its terms, i.e., no binding agreement would result until a formal contract was drafted by counsel. may That plaintiff have intended or believed a binding contract came into existence upon his signing letter is immatеrial in the face of its language which plainly indicated otherwise.
We conclude contract, that the letter did not constitute a binding but was merely “an agreement to agree” which cannot be made the basis aof cause Productions, of action. (Autry v. 144, Republic Inc. (1947) 30 Cal.2d P.2d 888].) While plaintiff does not directly challenge the sustaining of the demurrer to his second and third causes of action (bad faith denial of the existence of a contract and breach of the implied covenant of faith good and fair dealing, such respectively), ruling was proper inаsmuch as the validity of those relationship. causes of action is dependent formation of a contractual America, (K v. Bank supra, 57; Hess v. ruse Transamerica Occidental Ins. Co. 190 Cal.App.3d 944-945 Life Cal.Rptr. 715].)
II
Plaintiff contends the trial court improperly sustained the demurrer with
out leave to amend.
It is an abuse of discretion to sustain a demurrer
to a complaint without leave to amend if there is a reasonable possibility
that the defect can be
cured
amendment.
(Scott City
Indian Wells
Cal.3d
1564 by it was intended reasonably subject interpretation ambiguous and is Zaid, 268 supra, Connell binding (See to constitute a contract. the would into allegation bring addition of such an 795.) The on may a interpret writing that a trial court on demurrer not the rule play (Southern of its terms meaning prevails. that the assumption plain Farms, Inc., supra, Co. v. Land Westlake Pacific However, were made a cause of action if an amendment 817.) such the contract em contract would not be stated because for breach of still void. bodied in the letter is hence illegal it unlawful for one Code section makes Business Professions rebate, refund, com- “any to receive or accept licensed in the arts healing consideration, discount, dividend, mission, or other patronage preference, otherwise,” or money оr as induce- compensation whether in the form of “the prevent was intended to ment for the referral of The statute patients. extra, more to or or being tempted] suggest prescribe referring person [from to referred because the by patient services whom expensive person by a he generates income is function of business referring person’s evil to be (1970).) proscribed referral.” The (53 Ops.Cal.Atty.Gen. “ referral, any . but 650 ‘. . for the also by just section is not payment may by considerations other than where the referral be induced relationship (63 Ops.Cal.Atty.Gen. of ....’” the best interests the patient any a of omitted.) “Certainly sick deserves to free (1980), patient fn. by is influenced judgment profit reasonable that his doctor’s suspicion Clinic v. State Bd. Medical Examiners (Magan motive.” Medical Cal. of 124, 132 Cal.Rptr. 256].) The shall act as medical director alleged provides he active admitting health at that maintain Hospital, requires of mental offer, pertinent “. . . provides part: in 4Business and Professions Code section 650 [T]he delivery, any acceptance, by person under division Heal receipt or licensed this [Division dividend, rebate, refund, discount, commission, any patronage ing preference, or Arts] otherwise, consideration, money compensation or induce other whether in the form or as clients, any any referring patients, person, irrespective for member ment or customers to any coownership patients, ship, person interest whom such cli proprietary or or with to any person not for li ents or are referred is unlawful. . . . shall be unlawful customers []f] [I]t clinic, laboratory, person any pharmacy, censed this division refer a to or health under solely facility proprietary coownership has or in such care because such licensee interest clinic, facility; laboratory, pharmacy, health care but such shall be unlawful if the or referral valid for ‘Health prosecutor proves that there was no medical need such referral. ...[]]] home, facility, facility’ hospital, nursing private care means a medical care or mental institu by [j|] A Department State of this section is a tion licensed Health Services. violation by county jail public punishable upon imprisonment in the for offense and is first conviction year, prison, by exceeding imprisonment or in the state or a fine not ten not more than one ($10,000), subsequent A or imprisonment both such fine. second thousand dollars prison.” punishable imprisonment the state conviction is there, him patients to admit his privileges permits psychiatric Hospi- tal, and fixes his at of the room and board compensation percent charges all of the each Hospital’s psychiatric patients agreement. month of the *10 This formula links to compensation psychiatric the number of plaintiff’s the thereby at an inducement for to inpatients Hospital, providing plaintiff refer his of (admit) patients Hospital. Accordingly, performance the contract would violate Business and Profession’s Code section 650. Plaintiff is argues there no violation because the contract contemplates for payment services, v. medical not referrals. Blank Palo patient (See Alto-Stanford 377, Center 234 Hospital 390 (1965) Cal.App.2d 572].) The contention is without merit. In 650 1971 section was amended to delete the word “unearned” before the words “rebate” “consideration” the first 1971, 1568, 4, (Stats. 1; of the section. ch. paragraph and see fn. A antе.) § material of a change language the statute shows an on intention the part the of to the Legislature change (Balboa of the statute. Ins. v. meaning Co. 1002, Aguirre (1983) 149 1007 Cal.App.3d Cal.Rptr. 250].) According- 650, ly, for of of purposes applicability section it is immaterial that the referring physician by earns compensation services if that com- performing pensation subject by is increase to his referral of patients.
Because of the performance contract purported would violate Business 650, and Professions Code section the contract is void аnd unenforceable.5 (Mason v. Hosta (1984) 152 987 Cal.Rptr. 859].) portion That concurring opinion disagrees the which with our conclusion that the agreement entirety, is points unenforceable in its illegal out that compensa inasmuch as the only plaintiff tion arises when patients admits one of his own to defendant Hospital, such ille gal may agreement by consideration deleting be severed from the provision allowing the plaintiff to admit his patients. reasoning inapplicable own Such appeal is in this in which the question propriety sustaining sole the general is of the cоmplaint. of a demurrer to the A de primary testing murrer has the legal sufficiency function of the pleading of the to which it is only questions (Seidner addressed and raises of law. OwnersAssn. Greenfield Cal.Rptr. 803].) only “The issue involved in a demurrer hear ing matters, is complaint whether the as it stands unconnected with extraneous states a cause (SKF of action Superior Farms v. Court [citation].” 905 [200 Cal.Rptr. 497].) illegality agreement, Because pleaded, appears the of the as the face on complaint, the demurrer properly is sustained. Contrary expressed to concurring thе view in the opinion, the cannot be amend- allege severability thereby ed to rendering agreement the part. valid and enforceable in While may possible segregate illegal portion it to the plaintiff’s compensation (i.e., portion the charges plaintiff’s by attributable to room and psychiatric patients board admitted him to Hospital) by defendant portion, proscribed from the untainted the evil section Business “ referral, merely payment Code any Professions is not for ‘. . relationship the but also . may by the where referral be induced considerаtions other than best pa- the interests of the (63 Ops.Cal.Atty.Gen. tient ....’” (1980).) Accordingly, alleged agreement the be- legal only comes if provision permitting plaintiff psychiatric and enforceable to admit his patients Hospital to defendant plaintiff’s compensation is stricken or if is not tied to the monthly charges general revenue from psychiatric patients. room board of all Courts may agreement not revise an or create a guise contract not made under
III causes of the trial court recognized plaintiff’s Plaintiff contends are not dependent interference with economic relations action for contract, ground as shown second existence of an enforceable viz., demurrer, benefit “any economic prospective sustaining court’s Plaintiff then claims.” too speculative support plaintiff’s damages flowing the demurrer because sustaining the court erred in argues reference to the terms of the tort can be measured from commission compensation. alleged fixing plaintiff’s *11 validity unnecessary contention. It is It is to discuss this is and not the in a demurrer which reviewable sustaining court’s action Tax Board v. Firestone (Franchise statement of reasons for its action. court’s 878, 460].) 87 883 Cal.Rptr. Tire & Rubber Co. (1978) Cal.App.3d [151 order demurrer sustaining general based on an Accordingly, judgment taken. if of demurrer is well any grounds must be affirmed one of 14, 25 21 County (1979) Cal.Rptr. v. Ventura Cal.3d (Longshore [157 706, 866].) 598 P.2d an causes of action for interference with Defendant demurred to the others, they were based ground, among economic on the relationship tort of never came into existence. It is true that the a contract which upon of the broader tort of interfer- merely species intеrference with contract is the elements of the advantage although economic and ence with prospective similar, of a is not a legally binding agreement two actions are the existence more inclusive non the maintenance of an action based sine qua 745, 14 823 (1975) Cal.Rptr. v. Johnson Cal.3d wrong. (Buckaloo [122 However, labeled his fourth and fifth causes 865].) 537 P.2d while plaintiff With Economic Relationship” of action “Intentional Interference With Relationship,” respectively, Interference Economic “Negligent actually were based on they of those causes of action show allegations Thus, it breach of contract. was inducing interference with contract of the contractual between Group relationship that the Health knew alleged that the falsely and the Hospital represented Hospital plaintiff to induce the to breach its Hospital contract was with the intent illegal set forth facts an showing contract with Neither cause of action plaintiff. their and the other than Hospital economic between relationship contractual alleged relationship. (Diaz (1977) Cal.Rptr. v. Bank
construction. United California construing simply and declare what 314].) In a contract the office of the court is to ascertain substance, therein, what has been omitted or to in terms or in and not to insert is contained Proc., 1858; (Code v. & General Ins. Co. inserted. Civ. Jensen Traders omit what has been § (1959) 1].) 52 Cal.2d P.2d as an Inasmuch the existence of a valid contract is element of the tort of breach of contract or interference inducing (Contemporary with Investments, Inc. v. Title Co. Ins. 145 Safeco 822]; Tri-Valley Growers Cal.Rptr. Dryden 990, 720]), the demurrer to the fourth and fifth causes of action properly was sustained.
Disposition The is affirmed. judgment J.,
Woods (Fred), concurred. JOHNSON, because, J I concur I judgment. write separately although agree I the compensation arrangement between Beck Ameri Inc., can Health violates Group, Business and Professions Code section I respectfully disagree with the majority’s agreement, conclusion if there were an agreement, unenforceable toto.
The majority assumes the apparently agreement is void in its entirety because it unlawfully Beck to receive an permits indirect referral fee for each of own his he refers patients facility. to the health care This assump- tion is incorrect. can, the court consistent with the the reasonably intent of parties,
“[I]f relate illegal the consideration on one to specified side some or determinable side,” portion of the consideration on the other the contract bewill deemed severable the illegal severed from the v. portion contract. Har (Keene 318, ling 61 513, 321 (1964) Cal.2d 273]; 392 P.2d Cal.Rptr. accord [38 Ryan 91, v. Mike-Ron Corp. (1968) 259 Cal.App.2d 95-96 Cal.Rptr. 224]; 973, v. Heights, Lawn Camino Inc. 15 (1971) 980 621]; 660, see Marvin v. Cal.Rptr. Marvin (1976) 18 Cal.3d 672 [134 only Cal.Rptr. 106].) P.2d It is where the court сannot distinguish between the lawful and unlawful portions of the agreement, illegali and the ty taints the entire agreement, that the entire agreement will be illegal (Keene unenforceable. v. Harling, at supra, 321; Cal.2d Weber v. p. Tonini P.2d 132].) Here, illegal the of portions the compensation agreement clearly are severable. Beck’s although in compensation, described terms of a percentage board, of the revenues for room and essentially is calculated per on a capita Thus, basis. his compensation varies with the addition or subtraсtion of patients. patients one of his own Beck admits arises when illegal compensation
The time, an receive At Beck would treatment. facility care for to the health fees for room his patient’s fee calculated as percentage indirect referral his own Beck to admit permitting contractual provision board. If the severed, The illegality. too is the so facility health care is to the patients to all other services whereby Beck provides the agreement, remainder of fee, taint any illegal would be free exchаnge per capita patients enforceable. and therefore severability scope is not within the issue majority argues
The contrast, In complaint. matters extraneous because it involves review because the before it is illegality properly the issue of majority contends severability So too does of the complaint. on the face illegality appears contract, above, as the terms As I arrangement. explained of the fee the illegal portion demonstrate they complaint, were presented other, valid consideration. from is severable correct, action However, majority’s argument even assuming required are allegations because additional merely not be barred would a defect in the possibility If there is a reasonable a viable claim. state amendment, given should can be cured 11 Cal. 3d City Angeles (1974) Los (Minsky to amend. opportunity v. Kezirian 726]; 520 P.2d Call Cal.Rptr. 118 [113 103].) his complaint Beck could amend concedes majority apparently The Therefore, be- agreement been an had there otherwise severability. allege Beck should be at the least Group, the defendant Health tween Beck and *13 severability. allege his to amend permitted denied October Court was Supreme for review petition Appellant’s 11, 1989.