COUNTY OF SANTA CLARA, Petitioner, v. THE
H048486
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT
Filed 4/26/22
CERTIFIED FOR PUBLICATION; (Santa Clara County Super. Ct. No. 19CV349757)
Petitioner County of Santa Clara operates a health care service plan, licensed under the Knox-Keene Health Care Service Plan Act. Real parties in interest Doctors Medical Center of Modesto and Doctors Hospital of Manteca, Inc. (collectively, the Hospitals) provided emergency medical services to members of the county‘s health plan and submitted reimbursement claims to the county. The county reimbursed the Hospitals for only part of the claimed amounts. The Hospitals sued the county for the full amounts of their claims, the operative complaint alleging a single cause of action for breach of an implied-in-fact or implied-in-law contract. The county demurred, asserting it is immune from the Hospitals’ suit under the Government Claims Act (
Respondent court overruled the demurrer, the county petitioned for writ relief here, and we issued an order to show cause. Because the county is immune from common law claims under the Government Claims Act and the
I. TRIAL COURT PROCEEDINGS
According to the Hospitals’ operative third amended complaint, the county operates a health care service plan called Valley Health Plan, which is licensed and regulated by the state Department of Managed Health Care (Department) under the Knox-Keene Health Care Service Plan Act of 1975 (
The Hospitals sued the county for reimbursement. The Hospitals initially alleged both tort and implied-in-fact contract causes of action. The trial court sustained the county‘s demurrer to the Hospitals’ second amended complaint. The court denied leave to amend regarding the tort causes of action, concluding that as a public entity the county was immune from those common law claims. (Citing
The Hospitals allege in the operative third amended complaint‘s single cause of action that they provided emergency medical services to the county‘s patients with the expectation of “reasonable and customary payment” from the county; that the county did not “assert that the Patients were not [its] insured[s] or indicate in any way to the [Hospitals] that [it] would not cover the Patients[‘] medical expenses“; that inaction by the county “gave rise to implied-in-fact agreements between the [Hospitals] and [the county] obligating [the county] to pay for the care and treatment rendered by the [Hospitals] to the Patients at a reasonable and customary rate“; and that the county‘s ordinances “approved by its Board of Supervisors, as well as the statutes contained within the Knox-Keene Act and regulations of [the Department], give rise to implied-in-law agreements between the [Hospitals] and [the county] obligating [the county] to pay for the care and treatment rendered by the [Hospitals] to the Patients at a reasonable and customary rate.” The county allegedly “acknowledged [its] implied contractual obligations to the [Hospitals] by issuing partial payment on such claims. However, [it] failed to
The county demurred to the operative complaint, arguing there is no private right of action to sue for reimbursement under the Knox-Keene Act; a breach of an implied contract cause of action cannot be asserted against a public entity; and (in supplemental briefing) that the county was immune from the lawsuit by operation of
The county petitioned for writ relief in this court. A different panel issued an order to show cause, invited further briefing, and granted the California State Association of Counties’ request to file an amicus curiae letter.
II. DISCUSSION
We review a trial court‘s order overruling a demurrer de novo. (Casterson v. Superior Court (2002) 101 Cal.App.4th 177, 182.) We assume the truth of factual allegations in the complaint, and determine whether a valid cause of action is stated under any legal theory. (Mayron v. Google LLC (2020) 54 Cal.App.5th 566, 571.) “Although extraordinary relief ordinarily is not available at the pleading stage, mandamus is available when ... extraordinary relief may prevent a needless and expensive trial and reversal.” (Spielholz v. Superior Court (2001) 86 Cal.App.4th 1366, 1370, fn. 4.)
A. THE KNOX-KEENE ACT
The county (through its Valley Health Plan) and the Hospitals are health care service plans licensed under the Knox-Keene Act, a “comprehensive system of licensing and regulation under the jurisdiction of the Department of Managed Health Care.” (Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 215 (Bell).) The county has no contract for the provision of medical services with either of the Hospitals, making them noncontracting providers. When, as here, a noncontracting health care service plan provides emergency services to another plan‘s enrollee, the enrollee‘s plan “shall reimburse providers for emergency services and care provided to its enrollees, until the care results in stabilization of the enrollee.” (
Regulations implementing the Knox-Keene Act define ” ‘Reimbursement of a Claim’ ” for noncontracting providers as: “the payment of the reasonable and customary value for the health care services rendered based upon statistically credible information that is updated at least annually and takes into consideration: (i) the provider‘s training, qualifications, and length of time in practice; (ii) the nature of the services provided; (iii) the fees usually charged by the provider; (iv) prevailing provider rates charged in the general geographic area in which the services were rendered; (v) other aspects of the economics of the medical provider‘s practice that are relevant; and (vi) any unusual circumstances in the case.” (
Each health care service plan must have a dispute resolution mechanism through which noncontracting providers can seek resolution of billing and claims disputes. (
Violations of the Knox-Keene Act and the implementing regulations are subject to enforcement actions. (
B. IMPLIED-IN-LAW CONTRACT CLAIM
The county argues it is immune from any implied-in-law contract cause of action by operation of the Government Claims Act. There is “no common law tort liability for public entities in California; instead, such liability must be based on statute.” (Guzman v. County of Monterey (2009) 46 Cal.4th 887, 897 (Guzman).)
1. Government Code Section 815 Bars a Quantum Meruit Action
The Hospitals cite cases involving reimbursement disputes between private health care service plans, contending those cases demonstrate the viability of their cause of action. (Citing Bell, supra, 131 Cal.App.4th 211; Children‘s Hospital Central California v. Blue Cross of California (2014) 226 Cal.App.4th 1260, 1270 (Children‘s Hospital).) But because no public entity was involved in those cases, those courts had no occasion to decide the immunity question presented here. (Fricker v. Uddo & Taormina Co. (1957) 48 Cal.2d 696, 701 [“[C]ases are not authority for propositions not considered.“].) And the bases for the cause of action in Bell were the Unfair Competition Law (
2. The Mandatory Duty Exception in Gov. Code Section 815.6 Does Not Apply
The Hospitals argue that their suit is authorized by
The Hospitals argue that Health & Safety Code section 1371.4, subdivision (b) imposes a mandatory duty on the county that triggers the
3. No Other Statute Authorizes an Action for Damages
Though
Not all violations of a statute give rise to a private right of action. (Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592, 596-597 (Lu).) “[W]hether a party has a right to sue depends on whether the Legislature has ‘manifested an intent to create such a private cause of action’ under the statute.” (Id.) That intent can be shown through ” ’ “clear, understandable, unmistakable terms” ’ ” in the text of the statute itself that “strongly and directly indicate that the Legislature intended to create a private cause of action.” (Id. at p. 597; e.g.,
The Hospitals acknowledge that “there is no express[] language providing a private right of action under the Knox-Keene Act.” Having
The Hospitals argue that despite the lack of express language creating a private right of action under the Knox-Keene Act, “there is clear legislative intent providing for such a right, as further supported by established case[ ]law.” But the Hospitals point to nothing in the legislative history of the Knox-Keene Act evincing an intent to allow private rights of action. They cite
According to the Hospitals, “California Courts have repeatedly held that private rights of action are permitted to challenge violations of the Knox-Keene Act under the UCL and common law.” That contention reflects a misunderstanding of the private right of action concept. A statute which creates a private right of action is one that can be sued on directly, not through the common law or another statute. The cases the Hospitals cite, including Bell, were brought on unfair competition law and quantum meruit theories (Bell, supra, 131 Cal.App.4th at p. 216), and did not assert a private right of action under
The Hospitals assert that finding the county immune from the Hospitals’ implied-in-law contract action will allow the county “to unilaterally underpay the patient accounts at issue” without any recourse to the Hospitals. They argue in their supplemental brief that “there is no remedy available under the Knox-Keene Act or any statutory framework that would
We acknowledge that under our interpretation of the relevant statutes a health care service plan has greater remedies against a private health care service plan than it does against a public entity health care service plan. (E.g., Bell, supra, 131 Cal.App.4th 211.) But that result is driven by the Legislature broadly immunizing public entities from common law claims and electing not to abrogate that immunity in the context presented here. We have no authority to rewrite the statutes we are called upon to interpret. (People v. Statum (2002) 28 Cal.4th 682, 692.)
4. The Trial Court‘s Constitutional Concerns Are Unfounded
The trial court‘s order expressed the view that the public policy argument the county proffered would “ultimately result in acts that are both unconstitutional [citations] and against the stated Legislative purposes and the underlying policies of the Knox-Keene Act.” The Hospitals embrace the trial court‘s constitutional concerns, which appear to derive from a statement in Bell rejecting the notion that a plan was “free to reimburse emergency care providers at whatever rate it unilaterally and arbitrarily selects” because under that interpretation “emergency care providers could be reimbursed at a confiscatory rate that, aside from being unconscionable, would be unconstitutional.” (Bell, supra, 131 Cal.App.4th at p. 220; citing Cunningham v. Superior Court (1986) 177 Cal.App.3d 336, 348 [requiring private attorney to represent indigent client and provide free legal services violated equal protection].)
In contrast to the issues raised in Cunningham and Bell, the county does not contest its obligation to reimburse the Hospitals for the reasonable and customary value of the services provided to the county‘s enrollees. The issue here is what remedies may be pursued against the county when the reasonableness of the reimbursement is disputed. As we have discussed, the Knox-Keene Act and its implementing regulations provide alternative mechanisms to challenge the amount of emergency medical services reimbursements.
C. IMPLIED-IN-FACT CONTRACT CLAIM
The operative complaint alleges the existence of an implied-in-fact contract with the county. Because
The operative complaint contains a single cause of action for breach of an implied contract; within that cause of action are allegations based on an implied-in-law contract and an implied-in-fact contract. But ultimately the nature of the right sued upon is the breach of a noncontractual duty, described in the complaint as the county‘s obligation under ordinances “approved by its Board of Supervisors, as well as the statutes contained within the Knox-Keene Act and regulations of [the Department] ... to pay for the care and treatment rendered by the Plaintiffs to the Patients at a reasonable and customary rate.” That the operative complaint uses the phrase “reasonable and customary” rate, taken from the regulations implementing the Knox-Keene Act, indicates that the right sued upon derives from statute rather than contract. (See
San Mateo Union High School Dist. v. County of San Mateo (2013) 213 Cal.App.4th 418 (San Mateo) is instructive and supports our reasoning. The plaintiffs in San Mateo were school districts that invested money in a pooled retirement fund operated by the defendant County of San Mateo. The fund invested substantial capital with Lehman Brothers Holdings, Inc. (Lehman Brothers), losing over $150 million when the company went bankrupt. The plaintiffs sued the county following the collapse of Lehman Brothers, alleging statutory violations of prudent investor standards as well as breach of contract. (Id. at p. 424.) On appeal from a sustained demurrer, the San Mateo court determined that the statutory claims were barred by
The Hospitals cite Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171 (Retired Employees), which determined that “a county may be bound by an implied contract under California law if there is no legislative prohibition against such arrangements, such as a statute or ordinance.” (Id. at p. 1176.) But the only relevant conduct the Hospitals point to here is the issuance of “partial payment” by county employees in response to the Hospitals’ claims. The administrative actions of a county employee do not themselves create contractual liability on the part of the county, whose contracting authority originates with its Board of Supervisors. (Santa Clara County Charter, art. III, § 300 [“The county may exercise its powers only through the Board of Supervisors or officers acting under its authority or of law or of this Charter.“]2; see Dones v. Life Insurance Company of North America (2020) 55 Cal.App.5th 665, 693 [distinguishing Retired Employees; “Conduct by a County employee such as setting up payroll deductions and issuing confirmations of open enrollment benefit elections cannot operate to create an implied contract for provision of benefits in a manner contrary to legislative constraints.“].)
D. LEAVE TO AMEND
We requested supplemental briefing about whether leave to amend should be granted if the operative complaint fails to state a cause of action. Leave to amend would be appropriate if there is a reasonable possibility an amendment would cure the defect that caused the demurrer to be sustained. (Smith v. BP Lubricants USA Inc. (2021) 64 Cal.App.5th 138, 145.)
Based on our conclusion that the nature of the Hospitals’ action against the county is tortious rather than contractual, government immunity applies. The Hospitals have not identified any statute that would abrogate the immunity. Nor have they identified any conduct by the county‘s Board of Supervisors that might support a breach of implied contract cause of action. As the Hospitals have not demonstrated a reasonable possibility of successfully amending their complaint, they are not entitled to that opportunity.
III. DISPOSITION
Let a peremptory writ of mandate issue directing respondent court to vacate its September 3, 2020 order overruling petitioner County of Santa Clara‘s demurrer and to enter a new order sustaining the demurrer without
Grover, Acting P. J.
WE CONCUR:
Lie, J.
Wilson, J.
H048486 - County of Santa Clara v Superior Court
| Trial Court: | Santa Clara County Superior Court Superior Court No. 19CV349757 |
| Trial Judge: | Hon. Maureen A. Folan |
| Petitioner COUNTY OF SANTA CLARA | James R. Williams, County Counsel Douglas M. Press, Assistant County Counsel Melissa R. Kiniyalocts, Lead County Counsel Susan P. Greenberg, Deputy County Counsel David P. McDonough, Deputy County Counsel Office of the County Counsel County of Santa Clara |
| Real Parties in Interest DOCTORS MEDICAL CENTER OF MODESTO, INC. and DOCTORS HOSPITAL OF MANTECA, INC. | Albert Edward Stumpp Mikaela Grace Cox Everett Casey Mitchnick Faatima Seedat Helton Law Group |
| Amicus Curiae for CALIFORNIA STATE ASSOCIATION OF COUNTIES | Aurelia M. Razo, Sen. Deputy County Counsel County of San Diego |