Opinion
H045724
09-26-2019
COUNTY OF MONTEREY, Plaintiff and Appellant, v. MUNICIPALITIES, COLLEGES, SCHOOLS INSURANCE GROUP, Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Monterey County Super. Ct. No. 17CV002800)
Appellant County of Monterey, which operates a hospital, brought an action alleging four causes of action against respondent, a public entity that provides health insurance. Appellant alleged respondent and other entities substantially underpaid its hospital for medical trauma services. The trial court sustained respondent's demurrer without leave to amend as to all four causes of action and dismissed respondent from the suit. Appellant appeals the dismissal order, contending it pleaded viable causes of action. For the reasons set forth below, we affirm the trial court's order.
I. FACTS AND PROCEDURAL BACKGROUND
Appellant County of Monterey operates Natividad Medical Center, a hospital (hospital). Respondent Municipalities, Colleges, Schools Insurance Group (MCSIG) is a public entity that provides health insurance to public entities in the Monterey area through a health benefits program. MCSIG's members get medical services from hospital.
We summarize the facts underlying this action assuming, as we must on review after a demurrer is sustained without leave to amend, the truth of all properly pleaded allegations in hospital's complaint, as well as those that are judicially noticeable. (Heckart v. A-1 Self Storage, Inc. (2018) 4 Cal.5th 749, 753.)
The dispute in this appeal centers on the amount MCSIG owes hospital for trauma services hospital has provided to members of MCSIG. MCSIG reimbursed hospital for trauma services using the rate applicable to emergency services. Hospital alleges that MCSIG underpaid hospital for trauma services, because trauma services require substantially more resources and exceed the value of general emergency services.
In 2012, hospital contracted with insurance companies Blue Cross of California and Anthem Blue Cross Life and Health Insurance Co. (collectively, Anthem) to be a part of Anthem's network of providers. This agreement, referred to here as the "facility agreement," will be discussed in further detail below. MCSIG was not a signatory to the facility agreement.
In addition to providing insurance, Anthem also administered insurance claims for other insurance providers, including MCSIG. When MCSIG's members were treated at hospital, Anthem administered and priced those claims on behalf of MCSIG pursuant to the facility agreement and other written agreements. MCSIG, in turn, paid its members' claims to hospital.
In 2012, at the time hospital entered into the facility agreement with Anthem, hospital did not yet have a certified trauma center. In the facility agreement, hospital and Anthem agreed to negotiate rates for trauma services once hospital was certified to provide them. In January 2015, hospital received certification of its trauma center and began providing trauma services to patients, including to MCSIG's members. According to the terms of the facility agreement, hospital and Anthem began negotiations over the appropriate rates for trauma services but could not reach an agreement. After January 2015, hospital billed MCSIG's members for trauma services at a rate determined by hospital. However, MCSIG did not pay hospital for trauma services at the billed amount but instead paid only the lower rate applicable to emergency services.
Seeking recovery of its costs for providing trauma services, in July 2017, hospital filed a complaint against a variety of entities, including MCSIG and Anthem. Hospital alleged MCSIG breached an "implied-in-law" contract and sought "recovery for services rendered" and declaratory relief.
The named defendants were California Public Employees Retirement System (CalPERS), MCSIG, and Anthem. MCSIG is the only defendant involved in this appeal.
After the filing of hospital's original complaint, MCSIG's counsel initiated a meet and confer process to address alleged defects in the complaint. In September 2017, hospital filed a first amended complaint (hereafter referred to as the complaint) asserting six causes of action against defendants, four of which (the first, third, fifth, and sixth) apply to MCSIG. Hospital generally asserts "[t]he current difference between [hospital's] billed charges" and the amount MCSIG was "paying for the trauma claims" was $675,277.48.
The complaint's first cause of action alleges breach of a contract called the facility agreement that was entered into between hospital and Anthem. It alleges MCSIG, although not a signatory to that agreement, "availed" itself of the benefits of that agreement and breached it by underpaying hospital for trauma services provided to MCSIG members.
The third cause of action alleges breach of contract on behalf of a third party beneficiary, asserting that hospital was a third party beneficiary of "Employee Medical Benefit Evidence of Coverage ('EOC') Documents" that MCSIG publishes and provides to members of its health plans. It alleges that MCSIG "failed to pay [hospital] at the rates set forth in the EOC for each trauma MCSIG member that [hospital] treated."
The fifth cause of action asserts breach of contract by assignment based on assignments of benefits hospital received from MCSIG's members when they were treated at hospital. The complaint alleges MCSIG "breached these written benefit contracts by failing to pay [hospital] for trauma services at its billed charges."
The sixth cause of action seeks declaratory relief.
MCSIG filed a demurrer to all four causes of action. It also filed a request for judicial notice of the EOCs. Hospital filed an opposition, advancing a variety of arguments, including that its first cause of action for breach of contract should survive demurrer because the complaint sufficiently alleges that Anthem acted as MCSIG's "agent."
Hospital also filed a request for judicial notice of a document taken from MCSIG's website that lists its current members.
In January 2018, the trial court granted the parties' requests for judicial notice and conducted a hearing on MCSIG's demurrer. Addressing hospital's allegations that Anthem was an agent of MCSIG, the trial court stated it "didn't see any facts alleged in the Complaint that demonstrates that Anthem and MCSIG have an agency relationship. They're two independent entities. The contract in and of itself indicates the other payors get their rate, but they have nothing to do with the other payors."
The trial court also granted Anthem's unopposed request to stay proceedings as to Anthem in order for there to be an arbitration, and it also addressed a demurrer filed by CalPERS. Hospital's claims against CalPERS and Anthem are not at issue here.
As to the first cause of action (breach of the facility agreement between Anthem and hospital) and the third cause of action (breach of contract of a third party beneficiary), the trial court considered them together and determined that hospital alleged, in essence, an impermissible "implied" breach of contract theory against MCSIG. The trial court concluded "there [are] no facts stated sufficient to state a cause of action upon a third-party liability theory." The trial court therefore sustained MCSIG's demurrer as to both the first and third causes of action.
The trial court also sustained MCSIG's demurrer as to the fifth cause of action after hospital's counsel indicated that it was "fine" with proceeding with arbitration on the claim. The trial court noted that it was not ordering arbitration but, based upon counsel's statement and "on the arbitration clause agreement, the demurrer is sustained without leave to amend."
The trial court sustained the demurrer as to the sixth cause of action for declaratory relief because it was derivative of MCSIG's other defective causes of action.
Having sustained without leave to amend every cause of action against MCSIG, the trial court dismissed MCSIG as a party to the action. Hospital timely appealed the January 2018 dismissal order.
II. DISCUSSION
Hospital contends the trial court erred in dismissing its four claims against MCSIG or, alternatively, that hospital should be granted leave to amend its complaint. MCSIG argues that the trial court properly dismissed it from the lawsuit because all four claims are insufficient as a matter of law. For the reasons explained below, we conclude the trial court did not err in sustaining the demurrer as to all four causes of action asserted against MCSIG. We further hold that hospital in appellate briefing forfeited its argument that it should be granted leave to amend. We therefore affirm the trial court's order dismissing MCSIG as a party.
A. General Principles
"We review an order sustaining a demurrer de novo, exercising our independent judgment as to whether a cause of action has been stated as a matter of law." (Thompson v. Ioane (2017) 11 Cal.App.5th 1180, 1190.) "[W]e assume that the complaint's properly pleaded material allegations are true and give the complaint a reasonable interpretation by reading it as a whole and all its parts in their context." (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) "We do not, however, assume the truth of contentions, deductions, or conclusions of fact or law." (Ibid.) "In reviewing the demurrer, we also consider matters that may be judicially noticed." (Los Altos Golf & Country Club v. County of Santa Clara (2008) 165 Cal.App.4th 198, 203.) "Whether the plaintiff will be able to prove these allegations is not relevant; our focus is on the legal sufficiency of the complaint." (Ibid.) We may affirm the judgment if it is correct on any ground stated in the demurrer, regardless of the reasons articulated by the trial court in its ruling. (Leonte v. ACS State & Local Solutions, Inc. (2004) 123 Cal.App.4th 521, 525.)
B. First Cause of Action (Breach of Contract)
Hospital's first cause of action for breach of contract alleges MCSIG breached the facility agreement hospital executed in 2012 with Anthem. "[T]he elements of a cause of action for breach of contract are: (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to plaintiff." (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.) A defendant is entitled to a demurrer on a claim for breach of contract where the defendant is not a party to the contract. (See Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 452.)
There is no dispute that MSCIG was not a signatory to the facility agreement. In addition, the complaint does not allege that MCSIG was individually named in the facility agreement, knew about the existence of the facility agreement at the time Anthem and hospital executed it in 2012, or had ever seen the facility agreement prior to the filing of hospital's complaint. Hospital nevertheless asserts MCSIG became a party to the facility agreement on an agency theory in which Anthem acted as the agent of its principal (i.e., MCSIG), thus making MCSIG a party to the contract. With respect to breach, hospital alleges that MCSIG breached the facility agreement by underpaying hospital for trauma services.
MCSIG counters that it was not a party to the facility agreement. Furthermore, MCSIG argues that, even if it were bound by the facility agreement, hospital has failed to show any breach of the agreement by MCSIG.
The full text of the facility agreement does not appear in either the record on appeal or in the trial court record. Because of the procedural posture of the case, we must assume the properly pleaded facts contained in the complaint about the facility agreement are true. (See Goonewardene v. ADP, LLC (2019) 6 Cal.5th 817, 832-833 (Goonewardene).)
MCSIG has provided in the record on appeal certain pages of the facility agreement, which were attached to a request for judicial notice filed in the trial court by CalPERS. CalPERS attached what it deemed as the "[r]elevant pages from the Facility Agreement" and, in particular, pages 1, 2 and 13 from the agreement and "pages 1 and 8 from the Plan Compensation Schedule attached to the Agreement."
1. Whether the Complaint Adequately Alleges Anthem was MCSIG's Agent
Hospital advances two interconnected theories of agency to support its assertion that MCSIG became a party to the facility agreement. First, hospital argues that Anthem acted as MCSIG's agent when Anthem entered into the facility agreement. Second, hospital contends that MCSIG ratified the facility agreement when MCSIG referenced the facility agreement in its EOCs and when it paid hospital for its members' use of trauma services at the emergency services rate in the facility agreement negotiated by Anthem. Because "an allegation of agency is deemed an allegation of ultimate fact," (Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 886 [citing Skopp v. Weaver (1976) 16 Cal.3d 432, 437, 439]) these theories, if properly pleaded in the complaint, would be sufficient to survive demurrer. But hospital's complaint does not, in fact, allege that MCSIG became a party to the facility agreement through the actions of its agent, Anthem, and therefore the trial court properly sustained the demurrer.
a. General Principles of Agency
" 'An agent is one who represents another, called the principal, in dealings with third persons. Such representation is called agency.' (Civ. Code, § 2295.) 'An agency is either actual or ostensible.' (Civ. Code, § 2298.) 'An agency is actual when the agent is really employed by the principal.' (Civ. Code, § 2299.) 'An agency is ostensible when the principal intentionally, or by want of ordinary care, causes a third person to believe another to be his agent who is not really employed by him.' (Civ. Code, § 2300.)" (van't Rood v. County of Santa Clara (2003) 113 Cal.App.4th 549, 570 (van't Rood).) Actual agency may be created in several ways, including "by ratification." (Id. at p. 571.) The right of control is an essential characteristic. In its absence, there is no agency. (Id. at p. 572.)
" 'Authority may be granted to an agent either by a precedent authorization or a subsequent ratification. (Civ. Code, § 2307.)' " (van't Rood, supra, 113 Cal.App.4th at p. 572.) "An instrument within the scope of his authority by which an agent intends to bind his principal, does bind him if such intent is plainly inferable from the instrument itself." (Civ. Code, § 2337.)
With these principles in mind, we review whether the complaint alleges that MCSIG became a party to the facility agreement through the actions of its agent, Anthem.
b. Allegations of Agency in the Complaint
The initial recitations in the complaint (which hospital incorporates by reference into all of its causes of action, including the first cause of action) include one section entitled "agency." In that paragraph, hospital alleges that Anthem was MCSIG's agent, and that Anthem had "actual or ostensible authority" to act on MCSIG's behalf "for: (a) certifying or authorizing [hospital's] provision of services to members; (b) receiving [hospital's] claims; (c) pricing the claims; (d) processing and administering the claims and appeals; (e) approving or denying the claims; (f) deciding not to transfer the members to in-network hospitals for post-stabilization services; (g) authorizing [hospital] to provide services to Defendants' members; (h) directing whether and how to pay the claims; (i) issuing remittance advices and explanations of benefits; (j) communicating with [hospital] regarding the claims and services; (k) communicating with members regarding the claims and services; (l) providing utilization management services; and (m) in many instances issuing payment." This paragraph does not allege that Anthem acted as MCSIG's agent when it entered into the facility agreement.
Presumably connected to its ratification theory (although the complaint does not use the term "ratify" or "ratification"), the general allegations section of the complaint includes a paragraph that alleges: "In paying the claims at issue in this case, CalPERS and MCSIG availed themselves of the benefits of the Facility Agreement, and indicated that they were applying the Facility Agreement in paying the claims. Accordingly, even though CalPERS and MCSIG are not signatories to the Agreement, there is privity of contract, and to the extent that they have voluntarily availed themselves of the benefits of the Agreement, they cannot repudiate its burdens."
Similarly, in the first cause of action, the complaint alleges that MCSIG "availed" itself of "the benefits of the Facility Agreement by paying [hospital's] claims pursuant to the terms and conditions of the Facility Agreement" and "indicated on their Remittance Advices" that it was "paying the claims pursuant to the Anthem network and that [hospital] was a Participating or Preferred Provider in that network."
Having reviewed the complaint in its entirety, we conclude that hospital has not sufficiently pleaded agency to support its first cause of action for breach of the facility agreement. In its complaint, hospital alleges generally that Anthem acted as MCSIG's agent for various purposes, but, critically, it does not allege that Anthem entered the facility agreement on behalf of MCSIG. While hospital's opening brief in this court asserts that Anthem entered the facility agreement "on behalf of" MCSIG, that is not what the complaint alleges. Instead, the acts recited in the agency portion of the complaint are related to claims and claims processing—not entering into the facility agreement itself. The complaint also does not allege that Anthem was employed by or given precedent authorization by MCSIG to enter into the facility agreement.
In addition, the complaint fails to allege that MCSIG became a party to the facility agreement by ratifying the acts of its agent, Anthem. "Ratification is the voluntary election by a person to adopt in some manner as his own an act which was purportedly done on his behalf by another person, the effect of which, as to some or all persons, is to treat the act as if originally authorized by him." (Rakestraw v. Rodrigues (1972) 8 Cal.3d 67, 73, italics added.) "Generally, the effect of a ratification is that the authority which is given to the purported agent relates back to the time when he performed the act." (Ibid.) Although hospital asserts that the complaint alleges that Anthem entered into the facility agreement on behalf of MCSIG, we do not agree with hospital that the complaint either alleges this fact explicitly or is reasonably susceptible to that interpretation.
We have reviewed the entire complaint and focused on those portions of the complaint hospital asserts allege that MCSIG became a party to the facility agreement by ratifying the actions of its agent, Anthem. While the complaint alleges various acts done by MCSIG that purport to show it "availed" itself of the facility agreement, it does not allege that Anthem entered the facility agreement on behalf of MCSIG. (See van't Rood, supra, 113 Cal.App.4th at p. 571 [noting that agency requires mutuality and agency is a " 'bilateral matter,' " and " 'ratification is possible only when the person whose unauthorized act is to be accepted purported to act as agent for the ratifying party' "].)
For example, hospital references general allegations in the complaint that assert that MCSIG qualifies as an "Other Payor[ ]" under the terms of the facility agreement and that MCSIG is part of Anthem's network and managed care network, but these allegations do not allege that MCSIG is a party to the facility agreement. Nor does this language support a factual allegation of agency.
In sum, the complaint does not allege the theory of agency through ratification hospital asserts in this appeal. For this reason, the trial court correctly sustained the demurrer as to the first cause of action for breach of contract. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 229.)
Having concluded that hospital's complaint does not adequately allege an agency relationship, we need not address the separate inquiry of whether hospital's complaint sufficiently alleges breach of the facility agreement or the potential relevance of any finding made by the arbitrator in the arbitration proceedings between hospital and Anthem with respect to breach.
In support of its contention that MCSIG breached the facility agreement, hospital has requested that we take judicial notice on appeal of the final arbitration award it obtained against Anthem in August 2018, several months after the trial court's demurrer ruling. Reviewing courts generally do not take judicial notice of evidence not presented to the trial court and "will consider only matters which were part of the record at the time the judgment was entered." (Reserve Insurance Co. v. Pisciotta (1982) 30 Cal.3d 800, 813.) However, in certain circumstances, courts have granted judicial notice of arbitration documents even when they were not before the trial court. (See Cellphone Termination Fee Cases (2010) 186 Cal.App.4th 1380, 1386.) MCSIG does not oppose hospital's request that we take judicial notice of the arbitration award and relies on the substance of the arbitration award to defend the trial court's ruling on demurrer. Under these circumstances, we grant hospital's request that we take judicial notice of the arbitration award, although we do not rely on the award in reaching any of our conclusions in this appeal. We note that the final award in the arbitration between Anthem and hospital does not discuss whether Anthem was an "agent" for MCSIG, and does not state MCSIG was a party to the facility agreement. We therefore conclude the arbitration award is not relevant to our analysis of the first cause of action.
2. Leave to Amend
In its opening brief filed in this court, hospital does not address the trial court's denial of leave to amend any of its causes of action. For the first time, in its reply brief hospital requests that we afford it the opportunity to amend its complaint. Failure to raise an argument in the opening brief forfeits the issue on appeal. (See Reid v. City of San Diego (2018) 24 Cal.App.5th 343, 369.) In any event, hospital's reply brief fails to satisfy hospital's burden of explaining what additional facts hospital would allege that could cure the deficiencies in its complaint. We therefore conclude the trial court did not err in denying hospital leave to amend the complaint.
C. Third Cause of Action (Breach of Contract as Third Party Beneficiary)
In its third cause of action, hospital alleges breach of contract based on an alleged breach of the "evidence of coverage" documents MCSIG publishes and provides to the members of its health plan, and which the parties refer to (as do we) as the EOCs. In support of its demurrer, MCSIG filed a request for judicial notice of three EOCs that appear on MCSIG's website.
The three documents are titled (1) "Employee Medical Benefit Evidence of Coverage Document [¶] Preferred Provider Option $60"; (2) "Employee Medical Benefit Evidence of Coverage Document [¶] Preferred Provider Option $20 [¶] Preferred Provider Option $25 [¶] Preferred Provider Option $30 [¶] Preferred Provider Option $35 [¶] Preferred Provider Option $40 [¶] Preferred Provider Option $50"; and (3) "Employee Medical Benefit Evidence of Coverage Document [¶] Exclusive Provider Option Plans [¶] EPO $30 No Deductible [¶] EPO Southern California (EPO SoCal)."
According to hospital, the EOCs reflect an intent "that [hospital] receive payment for health care services, including trauma services, rendered to its members." The hospital contends it was a third party beneficiary to promises made in the medical coverage documents and therefore can enforce a breach of those promises.
As we explain further below, hospital's allegations in its complaint fail to support a cognizable claim based on the third party beneficiary doctrine; nor could hospital amend its complaint to establish a prima facie right to relief. Accordingly, the trial court properly sustained the demurrer as to the third cause of action without leave to amend.
1. Third Party Beneficiary Principles
"In California, as in other jurisdictions, it is well established that under some circumstances a third party may bring an action for breach of contract based upon an alleged breach of a contract entered into by other parties. Civil Code section 1559, enacted as one of the provisions of the original 1872 Civil Code, declares: 'A contract, made expressly for the benefit of a third person, may be enforced by him at any time before the parties thereto rescind it.' " (Goonewardene, supra, 6 Cal.5th at pp. 826-827.)
In Goonewardene, the California Supreme Court reviewed prior decisions interpreting the third party beneficiary doctrine and observed "that our court has carefully examined the express provisions of the contract at issue, as well as all of the relevant circumstances under which the contract was agreed to, in order to determine not only (1) whether the third party would in fact benefit from the contract, but also (2) whether a motivating purpose of the contracting parties was to provide a benefit to the third party, and (3) whether permitting a third party to bring its own breach of contract action against a contracting party is consistent with the objectives of the contract and the reasonable expectations of the contracting parties. All three elements must be satisfied to permit the third party action to go forward." (Goonewardene, supra, 6 Cal.5th at pp. 829-830, italics added.)
As explained further below, we conclude that hospital's third cause of action does not meet two of the three elements of the third party beneficiary doctrine. There is no dispute that the EOCs benefit hospital. However, the allegations in the complaint do not establish either that a motivating purpose of the parties to the EOCs (i.e., MCSIG and its members) was to provide a benefit to hospital or that permitting hospital to bring its own breach of contract action against MCSIG is consistent with the objectives of the EOCs and the reasonable expectations of the contracting parties.
2. Analysis
We first examine whether benefitting hospital was a motivating purpose of the parties to the EOCs. (See Goonewardene, supra, 6 Cal.5th at pp. 829-830.) The introduction to the EOCs, which were given to MCSIG's members, states that "[t]his Benefit booklet provides a complete explanation of your . . . benefits, limitations and other plan provisions which apply to you." On the following page, under a heading titled "General Information" and another subheading titled "Purpose," the EOCs state that "the Plan is maintained for the exclusive benefit of the Members [defined as subscribers and dependents] and is intended to be maintained on an indefinite basis. In addition, the terms of the Plan, including coverage and benefits may be legally enforceable by the Plan Members." The EOCs further state, "Only the Member is entitled to receive benefits under this Plan. The right to benefits cannot be transferred." The EOCs also provide that a member may "use any licensed provider you wish, anytime," including nonparticipating providers, but that a member will pay "out-of-pocket" if he or she uses such a provider.
In contrast to the facility agreement, the record on appeal contains the full text of the pertinent EOCs. Hospital did not oppose in the trial court the request for judicial notice of the EOCs, and it filed its own request for judicial notice as to other contents of the MCSIG's website that listed the members of the MCSIG's health plans. The EOCs, which are public entity agreements and also available on the public entity's website, are properly judicially noticeable under Evidence Code section 452, subdivisions (c), (g), and (h).
This language in the EOCs demonstrates that the motivating purpose of the EOCs was to benefit MCSIG's members, not providers like hospital. The written terms of the documents, not the allegations in the pleading, control the determination of intent in the third party beneficiary doctrine. (See Luis v. Orcutt Town Water Co. (1962) 204 Cal.App.2d 433.)
In an analogous case discussed by both parties, Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 795 (Ochs), the court held that, "[g]enerally speaking, a health care service provider's agreement to pay for medical care is intended to benefit the enrollees, not treating physicians with whom there is no contractual relationship. (See generally Hollister v. Benzl (1999) 71 Cal.App.4th 582, 586-587 [treating physician not employed by HMO was neither a party to nor a third party beneficiary of the contract between patients and HMO and was not bound by that contract's arbitration agreement].) Under ordinary circumstances, noncontracting health care providers . . . would be only incidental beneficiaries of a contractual agreement to pay for an enrollee's medical care." (Ibid.) In Ochs, the court held a health care service plan's demurrer was properly sustained because the complaint did "not allege a more specific agreement that might support a third party beneficiary theory." (Id. at pp. 795-796.)
As in Ochs, the intended beneficiaries of similar health benefit agreements are generally the enrollee members, not providers like hospital. (Ochs, supra, 115 Cal.App.4th at p. 795.) Hospital argues Ochs is distinguishable because the EOCs here reference participating network providers like itself and payment to such providers. We do not agree with hospital that these references to participating providers—which include a range of facilities and providers—reflect that the "motivating purpose" of the EOCs between MCSIG and its members was to benefit providers like hospital.
The California Supreme Court in Goonewardene emphasized that knowledge by the contracting parties that the contract will benefit a third party does not suffice to allege a cause of action based on the third party beneficiary doctrine. (See Goonewardene, supra, 6 Cal.5th at p. 830 ["Because of the ambiguous and potentially confusing nature of the term 'intent' [citation], this opinion uses the term 'motivating purpose' in its iteration of this element to clarify that the contracting parties must have a motivating purpose to benefit the third party, and not simply knowledge that a benefit to the third party may follow from the contract."]) Here, the language of the EOCs demonstrates that the "motivating purpose" of the health benefit plan documents was to benefit the plan's members—not to benefit hospital.
Moreover, even if a motivating purpose of such a contract were to provide a benefit to participating providers like hospital, the California Supreme Court further observed in Goonewardene that entitlement to bring suit under the third party beneficiary doctrine does not necessarily follow. (Goonewardene, supra, 6 Cal.5th at p. 836.) Instead, a right to bring suit is properly recognized only if "necessary to effectuate the objectives of the contract." (Ibid.)
We see no such necessity here. Instead of relying on a third party beneficiary for enforcement, the EOCs contemplate that MCSIG's members will enforce the EOCs if MCSIG failed to comply with its obligations under them. The EOCs state (with emphasis added here) that "the terms of the Plan, including coverage and benefits may be legally enforceable by the Plan Members." Therefore, arming hospital with a right to sue is not necessary to effectuate the objectives of the EOCs.
In addition, hospitals are just one of the types of providers defined under "Participating Provider." The definition also includes a host of other providers such as physicians, medical equipment outlets, urgent care centers, and retail health clinics. Under these circumstances, we do not read the EOCs as reflecting an intent by the members and MCSIG that all of these providers have a right to sue under the terms of the EOCs.
In support of its contention that it can bring a claim for breach of contract based on a third party beneficiary theory, hospital relies on Harris v. Superior Court (1986) 188 Cal.App.3d 475 (Harris). But that case is inapposite. Harris involved the "unusual situation" of a physician defendant who sought to avoid arbitration of a medical malpractice claim and wanted to proceed to a trial by jury. The Court of Appeal held the physician was bound by an arbitration clause signed by a professional corporation that employed the physician because the arbitration clause applied to claims against " 'employees or other contracting health professionals.' " (Id. at p. 479.)
The court's discussion in Harris of the third party beneficiary doctrine was limited to noting that a third party beneficiary "can gain no greater rights under that contract than the contracting parties" and thus the physician had to arbitrate since the parties to the contract had waived their rights to trial. (Harris, supra, 188 Cal.App.3d at p. 479.) The court did not conclude that that the doctor gained any special rights to enforce the contract and thus does not support hospital's position here.
Hospital also relies on National Union Fire Ins. Co. of Pittsburgh, PA v. Cambridge Integrated Services Group, Inc. (2009) 171 Cal.App.4th 35, 51, in which the appellate court held that an excess insurance provider was a third party beneficiary to a contract between an employer and its workers' compensation administrator. In reaching this conclusion, the court relied on "two interrelated reasons," (ibid.) the first was that the purpose of the contract "will necessarily" (ibid.) benefit the employer because it was to minimize the employer's legal obligations to its employees as to workers' compensation claims and this benefit "flows directly from one of the purposes of the contracting parties, which was to limit the [employer's] liability for workers' compensation claims." (Id. at p. 52.) The second reason was that the "text" of the contract demonstrates that the administrator was to administer employer's claims and this reflected "the intent of the parties to benefit" the excess insurance provider. (Ibid.) Here, the text of the EOCs does not reflect such an intent. To the contrary, the member decides which provider he or she chooses and remains free to select non-participating providers, undermining hospital's contention that the motivating purpose of the EOCs was to benefit hospital.
In sum, we conclude that the allegations in the complaint do not support the application of the third party beneficiary doctrine to the EOCs because benefitting hospital was not a motivating purpose of the contracts, and providing hospital with the right to sue MCSIG is not necessary to effectuate the members' contractual rights.
Because we agree with MCSIG that hospital cannot assert a third party beneficiary claim based on the EOCs, we need not address MCSIG's other arguments that the third cause of action is insufficient as a matter of law.
Regarding whether hospital can amend this claim, and as noted above, hospital forfeited that issue by failing to adequately brief it on appeal. Moreover, in light of the undisputed language of the EOCs, we also decide that there is no reasonable possibility that hospital can amend the complaint to plead a viable claim under the third party beneficiary doctrine. (See Apple Inc. v. Superior Court (2017) 18 Cal.App.5th 222, 258.) Therefore, the trial court properly sustained the demurrer to the third cause of action without leave to amend.
D. Fifth Cause of Action (Breach of Contract by Assignment)
Hospital's fifth cause of action flows from a standard assignment patients signed "[a]s a condition of admission." By virtue of this "assignment of insurance benefits," hospital alleges it received the MCSIG's members' rights under the EOCs. These rights, according to hospital, included the right for hospital to be paid its "billed charges for the trauma services it provided to MCSIG's members."
Hospital raises several arguments for reversal of the trial court's order sustaining the demurrer as to this cause of action, including that the EOCs permit such an assignment of "his or her health insurance benefits" to hospital and that the language in the EOCs can be interpreted to construe the hospital's right to be assigned "payment for services provided to a member." Hospital also contends that the trial court improperly dismissed the cause of action on the ground that the claim was subject to arbitration. MCSIG responds with multiple arguments, including that the assignment upon which hospital relies does not include the right of hospital to receive its billed charges from MCSIG.
1. General Principles
"The legal concept of assignment refers to the transferability of all types of property, including a cause of action. [Citation.] A cause of action, sometimes called a 'thing in action,' 'is a right to recover money or other personal property by a judicial proceeding.' (Civ. Code, § 953.) 'A thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.' (Id., § 954.) 'An obligation is a legal duty, by which a person is bound to do or not to do a certain thing.' (Id., § 1427.)" (Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1001.)
"An assignment carries with it all the rights of the assignor. [Citations.] 'The assignment merely transfers the interest of the assignor. The assignee "stands in the shoes" of the assignor, taking his rights and remedies, subject to any defenses which the obligor has against the assignor prior to notice of the assignment.' [Citation.] Once a claim has been assigned, the assignee is the owner and has the right to sue on it. [Citation.] In fact, once the transfer has been made, the assignor lacks standing to sue on the claim." (Johnson v. County of Fresno (2003) 111 Cal.App.4th 1087, 1096.)
We interpret an assignment using the ordinary rules of contract interpretation. (See, e.g., Kennecott Corp. v. Union Oil Co. (1987) 196 Cal.App.3d 1179, 1189.) The fundamental goal of contractual interpretation is "to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ. Code, § 1636.) "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." (Civ. Code, § 1638.) "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible; subject, however, to the other provisions of this title." (Civ. Code, § 1639.)
The interpretation of an instrument, such as the assignment here, is a judicial function "when it is based on the words of the instrument alone, when there is no conflict in the extrinsic evidence, or when a determination was made based on incompetent evidence." (City of Hope National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375, 395.)
2. Analysis
As alleged in hospital's complaint in a section titled "Assignment of Insurance Benefits," patients treated at hospital signed a form that included the following language:
"I assign and authorize direct payment to the hospital of all insurance benefits payable for this hospitalization or for these outpatient services. I agree that the insurance company's payment to the hospital pursuant to this authorization shall discharge the insurance company's obligations to the extent of such payment. I understand that I am financially responsible for charges not paid according to this assignment."
The allegations in the fifth cause of action further note that "MCSIG members assigned their insurance benefits" to hospital and that hospital therefore became "an assignee" of the rights that MCSIG members have in their benefit contracts with MCSIG, in particular the EOCs.
Hospital argues that, through this assignment provision, it obtained members' "health insurance benefits," and that "this right includes the right to sue for "non-payment or underpayment of benefits." It further argues that the EOCs permit, rather than prohibit, MCSIG members to assign the payment of benefits to providers like hospital. MCSIG counters that the assignment "simply authorized a means of payment" to hospital and does not, contrary to hospital's contention, provide hospital with a right to sue for its billed charges. We agree with MCSIG's reading of the language of the assignment.
The gravamen of hospital's claim with respect to the assignment cause of action is that the clause assigned to hospital the right to recover the full amount hospital billed for trauma services. However, nothing in the assignment language provides hospital a right to insurance benefit payments in any particular amount. Instead, the assignment expressly contemplates a potential difference between billed amounts and insurance benefits when it states that the individual is "financially responsible for charges not paid according to this assignment." Hospital has not alleged or contended on appeal that the language in the assignment (which it provided to patients) is ambiguous. Nor has hospital alleged or provided any contentions on appeal that any parol evidence supports a different interpretation of the assignment's plain language. (See George v. Automobile Club of Southern California (2011) 201 Cal.App.4th 1112, 1127-1128; see also Hervey v. Mercury Casualty Co. (2010) 185 Cal.App.4th 954, 965.)
Code of Civil Procedure section 1858 mandates "that when courts construe an instrument, a judge is 'not to insert what has been omitted, or to omit what has been inserted . . . .' " (Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 954.) Hospital's interpretation of the assignment effectively requests that we read language into the form assignment that guarantees a right—namely that the hospital should be paid by the insurance provider for the full amount of its billed charges—that does not exist. (See Klein v. Chevron U.S.A., Inc. (2012) 202 Cal.App.4th 1342, 1387.) It also effectively omits the last sentence of the assignment form which states that patient is "financially responsible for charges not paid," suggesting a potential gap between the insurance payments and the amount billed by hospital.
Rather than interpreting the assignment's language, hospital focuses much of its briefing on interpreting text included in the EOCs. However, we need not address these arguments because, even assuming arguendo that the EOCs provide members with such a cause of action, nothing in the text of the assignment conveys that right to hospital. Although hospital asserts that "MCSIG members had the right to assign their rights to payment of the benefits to [hospital], and [hospital] had the right to bring suit for those payments in its own name," hospital cites no textual support from the assignment for this proposition.
Hospital cites various cases for the proposition that California has a "public policy encouraging the assignment of money due under a contract." These cases do not assist hospital, however, because the language examined in those cases differs materially from the assignment here. Hospital relies, for instance, on Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335, 339. There, the plaintiff had been assigned all the rights of a dissolved company and sought to assert a breach of contract claim against a seller that failed to deliver products to the dissolved company. The California Supreme Court agreed with plaintiff that it had acquired by assignment a claim for money damages for nonperformance, and that such a claim was not barred by an anti-assignment clause in the buyer and seller's contract. (Ibid.) Here, unlike the assignee in Trubowitch, hospital did not acquire all of patient's rights for "money due or to become due under the contract." (Ibid.) According to the terms of the assignment, the patient assigned the right to direct payment of his or her insurance payments to hospital, and the assignment's language placed the responsibility for any shortfall in that payment on the patient. Under the language of the assignment, hospital did not receive an absolute right to receive from MCSIG (or any other insurance provider) its billed charges.
For these reasons, the trial court properly sustained MCSIG's demurrer to the fifth cause of action.
Hospital also argues that the trial court improperly dismissed the fifth cause of action on that the claim was subject to arbitration based on the arbitration provision in the EOCs. In light of our conclusion that the fifth cause of action does not plead a viable cause of action, we need not reach this issue.
E. Sixth Cause of Action (Declaratory Relief)
The sixth cause of action for declaratory relief alleges that "[a]n actual and ongoing controversy now exists between [hospital] and Defendants regarding the rate at which [hospital] is entitled to be paid for the trauma services it provided to Defendants' members and insureds." Hospital seeks a "declaration that the rate at which it is entitled to be paid for trauma services are its billed charges, and that Defendants' practice of pricing and paying [hospital's] trauma claims at the emergency services rate in the Facility Agreement is improper."
"Code of Civil Procedure section 1060 authorizes actions for declaratory relief under a 'written instrument' or 'contract.' Declaratory relief generally operates prospectively to declare future rights, rather than to redress past wrongs. [Citations.] It serves to set controversies at rest before they lead to repudiation of obligations, invasion of rights or commission of wrongs. In short, the remedy is to be used in the interests of preventive justice, to declare rights rather than execute them." (Jolley v. Chase Home Finance, LLC (2013) 213 Cal.App.4th 872, 909.) " 'To qualify for declaratory relief, [a party] would have to demonstrate its action presented two essential elements: "(1) a proper subject of declaratory relief, and (2) an actual controversy involving justiciable questions relating to [the party's] rights or obligations." ' " (Ibid. [quoting Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582].) "It is elementary that questions relating to the formation of a contract, its validity, its construction and effect, excuses for nonperformance, and termination are proper subjects for declaratory relief." (Fowler v. Ross (1983) 142 Cal.App.3d 472, 478.)
MCSIG argues that hospital cannot allege a claim for declaratory relief because hospital's underlying substantive claims fail as a matter of law. Hospital does not appear to dispute that its declaratory relief claim is derivative of its other causes of action, but it maintains that it properly pleaded its other causes of action, and therefore its declaratory relief claim should survive demurrer.
For the reasons discussed above, we have determined that hospital has not pleaded any viable claims, and it forfeited its argument that the trial court should have granted it leave to amend the complaint. Therefore, the trial court did not err in sustaining the demurrer as to the sixth cause of action for declaratory relief without leave to amend.
III. DISPOSITION
The order of dismissal is affirmed. MCSIG is to recover its costs on appeal.
/s/_________
DANNER, J.
WE CONCUR:
/s/_________
GREENWOOD, P.J.
/s/_________
GROVER, J.