Date: 10-01-2020

Case Style:

Arash Alborzi v. University of Southern California

Case Number: B299067

Judge: Collins, J.

Court: California Court of Appeals Second Appellate District, Division Four on appeal from the Superior Court, County of Los Angeles

Plaintiff's Attorney: Henry R. Fenton, Dennis E. Lee and Summer Main

Defendant's Attorney: Nelson Hardiman, Mark S. Hardiman, John A. Mills, Salvatore J. Zimmitti and Jonathan W. Radke

Description: Plaintiffs Arash Alborzi, M.D., and Arash Alborzi, M.D.,
Inc. sued defendants University of Southern California, Keck
School of Medicine of USC, and USC Verdugo Hills Hospital
(collectively, USC); as well as Concord Hospitalist Group and
Elevate Health Group. Alborzi and his corporation were part of a
panel of on-call physicians at Verdugo Hills Hospital. Plaintiffs
alleged that defendants entered into an illegal referral and
kickback scheme in which USC paid below-market rates for
hospitalist services from Concord, and Concord self-referred
patients to Elevate, which shared ownership with Concord.
Plaintiffs alleged that when Alborzi complained to management
at Verdugo Hills Hospital about the illegal scheme, the hospital
stopped referring patients to him and eventually dissolved the
on-call panel in retaliation. Plaintiffs’ causes of action include
violations of Health and Safety Code section 1278.5, a health care
whistleblower statute; Government Code section 12653, part of
the California False Claims Act; and Business and Professions
Code section 17200, et seq., the Unfair Competition Law.
USC demurred to plaintiffs’ complaint, asserting that
plaintiffs were required to exhaust all judicial remedies by filing
a petition for writ of mandamus under Code of Civil Procedure
section 1085 prior to filing an action for damages. The trial court
sustained the demurrer on that basis and entered judgment for
all defendants. We find that the trial court erred, because
plaintiffs were not required to exhaust judicial remedies before
asserting the causes of action they have alleged here.
USC asserted in the alternative that plaintiffs’ complaint
failed to allege facts sufficient to state a cause of action. On
appeal, plaintiffs argue that three of their six causes of action
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were sufficiently alleged. We find plaintiffs’ complaint alleged
sufficient facts to support causes of action for violations of Health
and Safety Code section 1278.5 and Business and Professions
Code section 17200, et seq., and therefore the demurrer should
have been overruled as to those claims. We find that plaintiffs’
cause of action for violation of Government Code section 12653
failed to allege sufficient facts to state a cause of action, but leave
to amend was warranted. Finally, we find that plaintiffs have
abandoned the three causes of action they did not address on
appeal. We therefore reverse the judgment, and remand the
action with directions to enter a new order sustaining the
demurrer in part and overruling the demurrer in part.
FACTUAL AND PROCEDURAL BACKGROUND
A. Plaintiffs’ allegations
Plaintiffs filed their initial complaint on December 26,
2018. USC filed a demurrer and motion to strike. Before the
scheduled hearing, plaintiffs filed a first amended complaint
(FAC) alleging the same six causes of action. The FAC is the
operative complaint for purposes of appeal, and we focus on the
allegations in that version.
Plaintiffs alleged that Alborzi is a physician specializing in
infectious disease, and he owns Arash Alborzi, M.D., Inc., which
“is comprised of other duly licensed physicians who also
specialize in infectious disease.” Alborzi and all members of
Arash Alborzi, M.D., Inc. “have medical staff privileges at
Verdugo Hills Hospital [(VHH)], which is owned by the
University of Southern California.” Plaintiffs were on the
infectious disease (I.D.) on-call panel at VHH. “When patients
came to VHH and required immediate emergency infectious
disease treatment, were admitted at VHH and required acute
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stabilizing infectious disease treatment, or any time a patient
required an infectious disease specialist to stabilize their
condition, the respective patient would be assigned to an
infectious disease specialist from the I.D. call panel.” The
physicians on the I.D. call panel were on a rotating schedule,
typically created months in advance, which “indicated which
weeks the respective specialist had to be available, at any hour of
the day, to see assigned patients.” The same on-call panel system
existed for other specialties, such as nephrology and anesthesia.
Plaintiffs alleged that “[s]tructured call panels are common
within hospitals and are required for all hospitals who receive
payment for patient services from government sources” pursuant
to state and federal law, including VHH. Plaintiffs alleged that
on-call panels “assist in preventing patient-endangering selfreferrals, bribes, and kickbacks because patients are assigned to
physicians based solely on the call panel schedule.”
Plaintiffs alleged on information and belief that in July
2017, “Defendant[ ] Concord entered into an exclusive contract
with Defendant VHH to provide hospitalist services to every
patient who presented to VHH without an assigned primary care
provider.” They alleged that the contract was “below market
value for comparable hospitalist services.” Plaintiffs alleged that
Concord was owned by three physicians: Dr. Narbeh Tovmassian,
Dr. Garen Derhartunian, and Dr. Devinder Ghandi. Tovmassian
and Derhartunian also owned defendant Elevate, which “provides
medical services including, but not limited to, primary care and
nursing home services.” Plaintiffs alleged that Concord referred
VHH patients to Elevate, and that “Defendant Concord benefits
financially from self-referring Defendant VHH patients to
Defendant Elevate because the same physicians own Defendant
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entities Concord and Elevate.” Plaintiffs alleged that this
constituted an improper kickback arrangement in violation of the
federal anti-kickback statute (42 U.S.C. § 1320a-7b(b)), and it
was a self-referral arrangement that violated state and federal
law. (42 U.S.C. § 1395nn(a)(1), Bus. & Prof. Code, §§ 650.01,
650.02, Health & Saf. Code, § 445, et seq.)
According to plaintiffs, beginning in August 2017 the
number of patients assigned to them via the I.D. call panel
“slowed significantly,” and “an unusual number of patient
consultations began to be referred to two specific infectious
disease specialists, Dr. Hun and Dr. Maslow.” Plaintiffs alleged
on information and belief that “Dr. Maslow entered into a
financial arrangement with Dr. Hun wherein Dr. Maslow
receives a percentage of Dr. Hun’s reimbursements for medical
services. This is a kickback arrangement in violation of the AntiKickback Statute.” Plaintiffs also alleged that Dr. Hun was
“employed either directly or as a contractor” by Elevate, and
“Defendant Concord benefits financially from self-referring
Defendant VHH patients to Dr. Hun for infectious disease
consultations” because Elevate employed Hun.
Plaintiffs alleged that beginning in December 2017, Alborzi
became concerned about the “increasingly slowing patient
assignments” from the I.D. call panel, since “December is the
beginning of flu season, and yet patient assignments from the
I.D. call panel were suspiciously low. This is when Dr. Alborzi
first became aware” of the defendants’ financial arrangements.
Between December 2017 and June 2018, Alborzi “expressed
concerns . . . regarding patient safety, the presence of illegally
incentivized decisions about patient care by and among
defendants, and the inability to practice medicine” resulting from
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defendants’ “financial arrangements” and “the non-use, or
misuse, of the on-call panel system.” Alborzi reported his
concerns to Keith Hobbs, Chief Executive Officer of VHH, in
February and April 2018. He also reported his concerns to Dr.
Armand Dorian, Chief Medical Officer of VHH, in May 2018. In
July 2018, plaintiffs received notice that the I.D. call panel had
been terminated entirely. Plaintiffs alleged that termination of
the on-call panel “was a retaliatory act” by defendants because
Alborzi had reported his concerns about the “illegal financial
arrangements” among defendants.
Plaintiffs alleged six causes of action in the FAC. In their
first cause of action against USC, plaintiffs alleged violations of
Health and Safety Code section 1278.5 (section 1278.5), which
bars retaliation against whistleblowers in healthcare professions.
Plaintiffs alleged USC stopped providing plaintiffs with panel
consultations and eventually terminated the I.D. call panel in
retaliation against Alborzi for reporting his concerns about the
financial arrangements among defendants. Plaintiffs asserted
that Alborzi’s reports concerned patient safety and constituted
protected activity under section 1278.5. They alleged that
defendants dissolved the I.D. call panel “in an attempt to injure
Plaintiff[s] financially,” and requested punitive damages.
In their second cause of action against USC, plaintiffs
alleged violations of Government Code section 12653, part of the
California False Claims Act (CFCA, §§ 12650, et seq.), which
provides whistleblower protections for employees. Plaintiffs
contended they “were, and continue to be, discriminated against .
. . by receiving diminished patient referrals,” and they were
“singled out because they were not involved in the illegal
financial arrangements described, but infectious disease
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specialists who were, such as Dr. Hun, received increased patient
referrals.” Plaintiffs further alleged that USC’s “discriminatory
conduct towards Plaintiffs was, in part, a retaliatory action
against Dr. Alborzi for his efforts to stop violations under the
California False Claims Act.”
In their third cause of action for wrongful discipline against
USC, plaintiffs alleged that “[a]s a member of the medical staff at
VHH, Dr. Alborzi had an implied in fact contract with Defendant
VHH not to impose disciplinary measures except for good causes
[sic].” VHH “violated that contract” when it “stopped providing
Dr. Alborzi with patient consultations and dissolved the
infectious disease on-call panel as a discipline for reporting illegal
activities.”
In plaintiffs’ fourth cause of action for intentional
interference with prospective economic advantage, plaintiffs
alleged that all defendants “intentionally interfered with
Plaintiffs[’] ability to practice medicine and Plaintiffs’ ability to
provide services to patients at Verdugo Hills Hospital by entering
into illegal financial arrangements and dissolving the infectious
disease specialist on-call panel.”
Plaintiffs’ fifth cause of action was for unfair business
practices under the unfair competition law (UCL), Business and
Professions Code section 17200, et seq., against all defendants.
Plaintiffs alleged that defendants violated Business and
Professions Code section 650, et seq.; Health and Safety Code
section 445; Welfare and Institutions Code section 14107.2; and
Business and Professions Code section 2273, subdivision (a), “by
participating in financial arrangements” including “inducing
illegal remuneration, bribes, fee-splitting, kickbacks, and self-
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referrals.” Plaintiffs asserted that these actions constituted
“unlawful, unfair, and fraudulent business practices.”
In their sixth cause of action for negligence against all
defendants, plaintiffs alleged that a hospital and its medical staff
have a duty to “provide patients safe and competent clinical
care.” A hospital and medical staff rely on each other to
accomplish this purpose, therefore “Defendants owed a duty of
care to Plaintiffs because Plaintiffs are physicians on the medical
staff at VHH.” Defendants breached that duty by participating in
the “untoward financial arrangements,” interfering with Alborzi’s
“right to practice medicine.”
Plaintiffs sought compensatory damages, including mental
and emotional distress; double back pay plus interest; punitive
damages; civil penalties; injunctive relief; costs; and attorney
fees.
B. USC’s demurrer
USC filed a demurrer to the FAC, asserting that each claim
failed to allege facts sufficient to state a cause of action, and each
was unintelligible. (Code Civ. Proc., § 430.10, subds. (e), (f).)1
USC asserted that plaintiffs “were required to petition for and
obtain a writ of mandamus under Code of Civil Procedure section
1085 to challenge [VHH’s] decision to contract exclusively for
Hospitalist services.” It argued that it had a “settled right,
1 Concord and Elevate also jointly demurred to the FAC,
asserting that plaintiffs’ fourth, fifth, and sixth claims failed to
allege facts sufficient to state a cause of action and were
unintelligible. (Code Civ. Proc., § 430.10, subds. (e), (f).) Their
demurrer was scheduled to be heard later than USC’s, and
because the court sustained USC’s demurrer and dismissed the
case, Concord and Elevate’s demurrer was never heard.
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confirmed over decades of unbroken California case law, to
contract exclusively with a physician group to staff a particular
hospital service.” USC asserted that VHH’s “decision to contract
with Concord and to dissolve the on-call panel were quasilegislative rules because their application was not limited to Dr.
Alborzi or his group’s physicians.” Because this decision “would
be applicable to any physician who practiced at VHH,” it was a
quasi-legislative decision, as opposed to a quasi-judicial action
impacting a particular doctor. USC argued that quasi-legislative
actions must be challenged by a writ of mandate, and could not
be challenged in an action for damages.
USC relied on cases such as Lewin v. St. Joseph Hospital of
Orange (1978) 82 Cal.App.3d 368 (Lewin), which we discuss in
more detail below. Briefly, in Lewin a physician challenged the
manner in which a nonprofit hospital staffed its chronic renal
hemodialysis facility. The hospital argued that its staffing
decision was “quasi-legislative” in nature, and therefore it could
only be challenged in a proceeding for traditional mandate under
Code of Civil Procedure section 1085. The Court of Appeal
agreed, holding that “the limited judicial review applicable to the
quasi-legislative actions of a governmental administrative agency
is also appropriately applied to judicial review of rule-making or
policy-making actions of a nonprofit hospital corporation.” (Id. at
p. 384.) The court reasoned that “[t]he operation and
administration of a hospital involves a great deal of technical and
specialized knowledge and experience” (ibid.), so courts “must
guard against unduly interfering with the board’s autonomy by
substituting judicial judgment for that of the board.” (Id. at p.
385.) USC asserted that under Lewin and other cases, “Plaintiffs’
claims for damages do not provide an alternative route to
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invalidate [VHH’s] contracting decisions. The law is clear that a
plaintiff alleging torts arising from improper agency action must
first have such action declared invalid in a mandamus action
before it can seek or recover from any torts.”
USC also argued that the individual causes of action in the
FAC failed. For the first cause of action, USC argued that
because it did not have a duty to maintain an infectious disease
on-call panel, the decision to end the on-call panel could not
support a cause of action under section 1278.5. In addition,
because the decision affected every doctor on the on-call panel, it
could not be deemed retaliatory against plaintiffs. As for the
second cause of action under the CFCA, defendants asserted that
plaintiffs did not allege facts suggesting that USC submitted any
false or fraudulent claims. USC argued that the third cause of
action for wrongful discipline failed because such a claim was
applicable only to employers and employees, and plaintiffs were
not employees of USC. Regarding the fourth cause of action for
intentional interference with prospective economic advantage,
USC argued that plaintiffs failed to allege an existing
relationship with a third party or any interference in that
relationship. USC asserted that the facts alleged in plaintiffs’
fifth cause of action for unfair competition were “insufficient to
notify [VHH] which prong of the UCL it is charged to have
violated.” Finally, USC contended that plaintiffs’ sixth cause of
action for negligence failed because USC did not owe a duty of
care to plaintiffs.
C. Opposition and reply
In their opposition, plaintiffs argued that section 1278.5 did
not require a claimant to exhaust administrative remedies, so it
was irrelevant whether VHH’s exclusive contract for services was
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quasi-legislative. Plaintiffs also asserted that the relevant issue
“is not whether the decision to dissolve the on-call panel was
quasi-judicial or quasi-legislative, it is whether the decision to
dissolve the on-call panel was retaliatory and aimed at Dr.
Alborzi.” They further asserted that “whether the decision
resulted in collateral damage to other physicians is
inconsequential.” Plaintiffs also argued that the facts alleged in
the FAC were sufficient to support each cause of action.
Plaintiffs requested leave to amend the FAC if the court were to
sustain the demurrer.
In reply, USC argued that plaintiffs ignored the settled law
of Lewin and similar cases, and although plaintiffs characterized
their claims as involving “patient safety,” they were actually only
personal claims. USC asserted that “[s]ection 1278.5 is
concerned with—and only applies to prohibit—retaliatory action,”
and “[q]uasi-legislative [action] is by definition not retaliatory.”
USC also argued that plaintiffs “give little to no effort [to
address] any of the arguments raised in the Demurrer with
respect to the second through sixth causes of action.” USC
further argued that leave to amend should be denied, because
plaintiffs had already attempted and failed to remedy the defects
in their pleadings.
D. Court ruling
The court issued a tentative ruling sustaining the demurrer
because plaintiffs failed to bring a mandamus action. At the
hearing, plaintiffs’ counsel asserted that although USC argued its
decision to dissolve the I.D. call panel was quasi-legislative action
that affected all doctors, “[i]n our first amended complaint, we
don’t allege that. We state that it’s being allied [sic] to Dr.
Alborzi and not to those who are involved in the fraudulent
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kickback scheme. That’s an issue of fact, not an issue of law and
shouldn’t be subject to a demurrer.” Plaintiffs’ counsel added,
“Whether this is or isn’t a legislative act is an issue of fact,” and
noted that plaintiffs “don’t know how [the] decision came about
and whether it was legislative or not.” The court noted that a
mandamus action would allow plaintiffs to do discovery on that
issue. After discussing the relevant case law with the parties’
counsel, the court stated that it would sustain the demurrer.
In the tentative ruling the court adopted as its final order,
the court recounted the parties’ arguments and stated, “The
Court finds Defendants’ arguments persuasive and finds that
Plaintiffs have failed to and cannot allege that they have
successfully challenged Defendants’ decision under the
mandamus procedure. The cases cited by Plaintiffs are all
distinguishable in that they hold that quasi-judicial decisions
need not be successfully challenged prior to bringing a suit for
retaliation. As noted by Defendants, however, a quasi-legislative
decision is not targeted at a particular individual, but rather is a
rule made applicable to all relevant parties and to all future
situations. Thus, the reasoning in the cases cited by Plaintiff[s]
is inapplicable here.” The court sustained USC’s demurrer
without leave to amend and dismissed the case with prejudice as
to all defendants.
The court entered judgment in favor of all defendants on
June 24, 2019. Plaintiffs timely appealed.
DISCUSSION
Plaintiffs contend on appeal that the trial court erred by
holding that VHH’s decision to disband the I.D. call panel was
quasi-legislative based on the facts alleged in the FAC, and by
holding that plaintiffs were barred from bringing this action due
13
to their failure to file a petition for writ of mandamus under Code
of Civil Procedure section 1085. As discussed below, we agree on
both issues, and reverse the trial court’s ruling. We then address
the parties’ contentions as to whether plaintiffs alleged sufficient
facts to support their causes of action.
On appeal after a demurrer has been sustained, we
determine de novo whether the complaint states facts sufficient
to constitute a cause of action. (Loeffler v. Target Corp. (2014) 58
Cal.4th 1081, 1100.) We “‘assume the truth of the complaint’s
properly pleaded or implied factual allegations.’” (Ibid.) “It is
plaintiffs’ burden to show either that the demurrer was sustained
erroneously or that the trial court’s denial of leave to amend was
an abuse of discretion.” (Keyes v. Bowen (2010) 189 Cal.App.4th
647, 655.)
A. Quasi-legislative action
The trial court impliedly found that USC’s actions were
quasi-legislative, and that as a result, plaintiffs were required to
exhaust judicial remedies by bringing a petition for writ of
mandamus rather than filing a civil action. The court embraced
USC’s reasoning that staffing decisions affecting an entire
department—such as dissolving the I.D. call panel—are quasilegislative. However, USC’s attempts to cast VHH’s decision as a
run-of-the-mill staffing decision contradict the facts alleged in the
FAC. Plaintiffs alleged that VHH’s action was targeted at
plaintiffs and was retaliatory, and we “take the allegations of the
operative complaint as true.” (Aryeh v. Canon Business
Solutions, Inc. (2013) 55 Cal.4th 1185, 1191.) Because USC’s
arguments rely on factual conclusions unsupported by the record,
the demurrer should have been overruled.
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1. Hospital staffing policies can be quasi-legislative
“[T]he terms ‘quasi-legislative’ and ‘quasi-judicial’ are used
to denote . . . differing types of action. Quasi-legislative acts
involve the adoption of rules of general application on the basis of
broad public policy, while quasi-judicial acts involve the
determination and application of facts peculiar to an individual
case.” (Beck Development Co. v. Southern Pacific Transportation
Co. (1996) 44 Cal.App.4th 1160, 1188.) “‘Generally speaking, a
legislative action is the formulation of a rule to be applied to all
future cases, while an adjudicatory act involves the actual
application of such a rule to a specific set of existing facts.’”
(Major v. Memorial Hospitals Assn. (1999) 71 Cal.App.4th 1380,
1398 (Major).)
In a hospital setting, if a physician’s individual medical
staff privileges have been denied, suspended, or terminated
because the physician failed to comply with established
standards, “that administrative decision is classified as ‘quasijudicial’ and review is by administrative mandamus.” (Hay v.
Scripps Memorial Hospital (1986) 183 Cal.App.3d 753, 758
(Hay).) “However, where the physician has had privileges denied
or curtailed because of the implementation of a ‘policy’ of the
hospital, the administrative action is classified as ‘quasilegislative’ and reviewable by traditional mandamus.” (Ibid.)
When quasi-legislative acts are reviewed by traditional or
ordinary mandamus under Code of Civil Procedure section 1085,
“‘the inquiry is limited to whether the decision was arbitrary,
capricious, or entirely lacking in evidentiary support.’” (McGill v.
Regents of University of California (1996) 44 Cal.App.4th 1776,
1785.)
15
In Lewin, supra, the Court of Appeal found that “the
limited judicial review” applicable to traditional mandamus is
appropriate for the “judicial review of rule-making or policymaking actions of a nonprofit hospital corporation.” (82
Cal.App.3d at p. 384.) The court explained, “The operation and
administration of a hospital involves a great deal of technical and
specialized knowledge and experience, and the governing board of
a hospital must be presumed to have at least as great an
expertise in matters relating to operation and administration of
the hospital as any governmental administrative agency with
respect to matters committed to its authority.” (Ibid.) Thus, “[a]
managerial decision concerning operation of the hospital made
rationally and in good faith by the board to which operation of the
hospital is committed by law should not be countermanded by the
courts unless it clearly appears it is unlawful or will seriously
injure a significant public interest.” (Id. at p. 385.)
2. Plaintiffs did not allege quasi-legislative action
USC asserts that dissolution of the on-call panel at VHH
was a quasi-legislative policy decision that could be challenged
only by ordinary mandamus under Code of Civil Procedure
section 1085, thus barring all of plaintiffs’ causes of action.
Plaintiffs disagree, asserting that they alleged USC’s “policy
decision” to dissolve the on-call panel was merely pretext, not a
legitimate quasi-legislative decision, and the trial court erred by
disregarding those allegations in the FAC. We agree with
plaintiffs.
Plaintiffs alleged that defendants entered into an illegal
kickback scheme, Alborzi complained about it, and USC dissolved
the on-call panel in retaliation, thus blocking plaintiffs from
receiving further referrals. USC cites to “settled law” that
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hospital decisions affecting staffing—compared to quasi-judicial
decisions that affect individuals—are quasi-legislative. It argues
that “courts have uniformly determined that hospital operational
decisions of general application are quasi-legislative as a matter
of law.” USC cites five cases in support, none of which supports
such a finding under circumstances similar to those in this case.
To the contrary, the cases USC cites involve trials or other
proceedings in which courts considered evidence before
determining that the hospitals’ staffing decisions were quasilegislative.
USC relies on Lewin, supra, 82 Cal.App.3d 368. In that
case, the respondent hospital, St. Joseph Hospital of Orange,
operated renal hemodialysis facilities on a “closed staff” basis,
meaning that the facilities were used by a single group of
nephrologists associated with the hospital. (Id. at pp. 375-376)
Dr. Lewin, a local physician, requested privileges to use the
hemodialysis units. The hospital approved his request regarding
the acute hemodialysis unit, but denied it as to the chronic
hemodialysis unit. Dr. Lewin filed a petition for writ of mandate,
alleging that the hospital had a duty to allow him to use the unit
and the hospital’s exclusive contract with the limited group of
physicians interfered with Dr. Lewin’s ability to practice his
profession. (Id. at pp. 380-381.)
The issue proceeded to a trial. Evidence discussed in the
Court of Appeal’s opinion includes the history of the hemodialysis
unit (Lewin, supra, 82 Cal.App.3d at p. 376); information about
the operation of the unit, including its billing practices, staffing,
and daily operations (id. at pp. 377-378); the number of chronic
patients treated in the unit (id. at p. 378); information about Dr.
Lewin’s education, medical practice, and privileges at various
17
hospitals (ibid.); detailed descriptions about Dr. Lewin’s
communications with St. Joseph Hospital’s executive committee
about his request to use the hemodialysis unit (id. at pp. 378-
380); the recommendation by the hospital’s medical committee,
which was reviewed and approved by the executive committee,
whose recommendation was then approved by the board of
trustees (id. at p. 379); and records of two separate hearings on
the issue in which relevant parties debated whether the units
should continue to be operated on a “closed staff” basis (id. at pp.
379-380.)
The Court of Appeal in Lewin considered this evidence in
finding that “The hearing held by the Executive Committee on
October 16, 1975 and the resulting decision of the Executive
Committee and the Board of Trustees to continue operating the
chronic hemodialysis unit on a ‘closed-staff’ basis were clearly
‘quasi-legislative’ in nature.” (Lewin, supra, 82 Cal.App.3d at p.
383.) The court gave several reasons for this finding, including
that “[t]he operation and administration of a hospital involves a
great deal of technical and specialized knowledge and experience”
(id. at p. 384), so courts “must guard against unduly interfering
with the board’s autonomy by substituting judicial judgment for
that of the board.” (Id. at p. 385.)
USC also relies on Mateo-Woodburn v. Fresno Community
Hospital & Medical Center (1990) 221 Cal.App.3d 1169 (MateoWoodburn), in which several anesthesiologists challenged a
decision by the Fresno Community Hospital (FCH) board of
trustees “to alter the system of delivery of anesthesia services at
the hospital from a rotating ‘open staff’ to a ‘closed’ system.” (Id.
at pp. 1174-1175.) Following a trial, the superior court denied
the physicians’ request for a permanent injunction, dissolved a
18
preliminary injunction, denied the physicians’ request for a writ
of mandate, and decided the cause of action for declaratory relief
in favor of the defendants. (Id. at p. 1174 & fn. 2.)
In the opinion affirming the judgment, the Court of Appeal
discussed the bylaws governing the medical staff at FCH,
including the formulation and approval of the bylaws (MateoWoodburn, supra, 221 Cal.App.3d at p. 1175); the manner in
which the executive committee coordinated the medical staff
departments (id. at p. 1176); how the anesthesiologists were
scheduled for surgeries, including problems with the scheduling
(id. at pp. 1176-1178); and the medical staff’s request to change
anesthesiology from an open to a closed staffing system (id. at p.
1187). The court further discussed the hospital board’s procedure
in considering and approving the change, including
implementation of a task force to study the proposal (id. at p.
1178); board meetings and administrative hearings considering
the changes, including transcripts from those meetings and
hearings (id. at pp. 1178-1180); and communication regarding the
hospital’s contract with a new entity to manage the department
of anesthesia and the terms of the contract itself (id. at pp. 1180-
1181). The court found that based on the evidence, “the policy
decision by FCH to go from an open to a closed system of delivery
of anesthesia services was not irrational, arbitrary, contrary to
public policy or procedurally unfair.” (Id. at p. 1184.)
USC also cites Hay, supra, 183 Cal.App.3d 753, in which
“Dr. Hay requested clinical privileges to perform dilation and
curettage (D & C) procedures” at a local hospital, and his request
was denied due to a “policy that a physician must satisfy a
minimum requirement of completion of a residency in obstetrics
and gynecology (OB-GYN) in order to receive D & C privileges” at
19
the hospital. (Id. at pp. 755-756.) Hay petitioned for a writ of
mandamus, which was denied. The Court of Appeal’s opinion
affirming the judgment does not make clear whether the superior
court held a full trial. Nevertheless, the Court of Appeal
discussed Dr. Hay’s background and qualifications (id. at p. 756);
his privileges at other hospitals (ibid.); the procedure followed
after Dr. Hay requested privileges at the hospital, including the
recommendations of the family practice supervisory committee
and the OB-GYN supervisory committee (id. at p. 757); the votes
of the executive medical committee and surgery supervisory
committee (ibid.); Dr. Hay’s appeal to a judicial review hearing
committee and its report (id. at pp. 757-758); and Dr. Hay’s
appeal to the hospital’s board of trustees (id. at p. 758.).
Citing Lewin, the court in Hay stated, “[W]here the
physician has had privileges denied or curtailed because of the
implementation of a ‘policy’ of the hospital, the administrative
action is classified as ‘quasi-legislative’ and reviewable by
traditional mandamus.” (Hay, supra, 183 Cal.App.3d at p. 758.)
The court discussed the reasoning behind the hospital’s
requirement for specific qualifications, and found that it was “not
irrational for a hospital to require [certain] training as a
minimum qualification for all obstetrical-gynecological surgeries.”
(Id. at p. 761.) The court concluded that the hospital’s policy
“does not violate public policy and is not substantively irrational
or unlawful.” (Id. at p. 762.)
USC also relies on Major, supra, 71 Cal.App.4th 1380,
which followed what the Court of Appeal characterized as a
“lengthy court trial.” In that case, the defendant hospital group
changed its anesthesiology departments from an open staff
system to a closed system with an exclusive provider. The new
20
provider did not offer subcontracts to several physicians who
formerly practiced as part of the hospital’s open staff, and the
physicians sued “based on multiple theories, including alleged
violations of the Unruh Civil Rights Act (Civ. Code, § 51), breach
of contract, civil conspiracy, and tortious interference with
plaintiffs’ professional business relationships.” (Id. at p. 1384.)
The trial court found in favor of the defendants, and the plaintiff
physicians appealed.
In an extensive fact section, the Court of Appeal discussed
the hospital’s medical staff bylaws (Major, supra, 71 Cal.App.4th
at pp. 1386-1387); staffing and staffing problems within the
anesthesiology department (id. at pp 1387-1392); investigation of
the department’s issues by a medical executive committee and
development of a subcommittee to consider potential solutions
(id. at pp. 1392-1395); adoption of the contract with the exclusive
anesthesiology provider (id. at pp. 1395-1396); and
communication to the plaintiff physicians that they had not been
selected as subcontractors (id. at p. 1397). After discussing the
evidence and applicable legal authority, the court stated, “We
conclude that Memorial Hospitals’ decision to close the
anesthesiology department was quasi-legislative, since it was not
directed at any specific physician or group of physicians. Rather,
it was based on a genuine concern about the overall function of
the anesthesiology department and directed at improving the
quality of patient care provided by that department.” (Id. at pp.
1410-1411.)
Finally, USC cites Abrams v. St. John’s Hospital & Health
Center (1994) 25 Cal.App.4th 628 (Abrams), which considered
“the enforceability of an agreement between a hospital and a
member of its medical staff where the member has contracted
21
away due process hearing rights otherwise afforded him or her by
existing hospital and medical staff bylaws.” (Id. at p. 631.) The
plaintiff filed a complaint alleging causes of action for breach of
contract, slander, negligent misrepresentation, and other causes
of action, and in connection with the breach of contract causes of
action, requested preliminary and permanent injunctions. (Id. at
p. 635.) The trial court denied the plaintiff’s request for a
preliminary injunction, and the Court of Appeal affirmed. The
court relied on Mateo-Woodburn in holding that the plaintiff was
not entitled to a hearing before his contractual rights and staff
rights could be terminated. (Id. at p. 638.)
Although USC is correct that these cases hold that a
hospital’s well-reasoned decision to change staffing in an entire
department may be deemed quasi-legislative, none of these cases
decided such issues at the pleadings stage or without
consideration of the manner in which the hospital reached its
decision. To the contrary, each case considered extensive
evidence demonstrating the hospitals’ staffing issues, the
procedures employed in changing the staffing plan or
implementing physician requirements, and the hospitals’ reasons
for establishing the standards or scheduling it did. As noted
above, the court in Lewin stated that it was reasonable to treat
hospital boards’ staffing decisions as quasi-legislative because of
the technical and specialized knowledge and experience required
for operating a hospital. (Lewin, supra, 82 Cal.App.3d at p. 384.)
Here, by contrast, there is no indication that VHH’s staffing
decisions were even made by a board, or that the decision
involved legitimate considerations about the operation or
administration of VHH. In fact, plaintiffs have alleged that the
decision did not involve legitimate concerns about the need for
22
infectious disease specialists, that it undermined patient care,
and it was done to cover up an illegal kickback scheme. The trial
court erred in ignoring plaintiffs’ factual allegations in deciding
the demurrer.
B. Plaintiffs’ claims were not barred by their failure to
exhaust judicial remedies.
USC also argues that there is a “longstanding rule
requiring exhaustion of judicial remedies” regarding hospitals’
quasi-legislative actions. The trial court agreed, holding that
plaintiffs “cannot allege that they have successfully challenged
Defendants’ decision under the mandamus procedure.” Even
assuming for the sake of argument that the defendants’ actions
could be deemed quasi-legislative, this position is not supported
by the authorities USC cites. The doctrine of exhaustion of
judicial remedies does not apply under the facts alleged in the
FAC, nor were plaintiffs required to exhaust judicial remedies on
their whistleblower causes of action.
“Under the doctrine of exhaustion of judicial remedies,
‘[o]nce a[n administrative] decision has been issued, provided
that decision is of a sufficiently judicial character to support
collateral estoppel, respect for the administrative decisionmaking
process requires that the prospective plaintiff continue that
process to completion, including exhausting any available judicial
avenues for reversal of adverse findings. [Citation.] Failure to do
so will result in any quasi-judicial administrative findings
achieving binding, preclusive effect and may bar further relief on
the same claims.” (Runyon v. Board of Trustees of California
State University (2010) 48 Cal.4th 760, 773 (Runyon).) Thus, the
doctrine of exhaustion of judicial remedies applies where “there
has been an adjudicatory, quasi-judicial decision in accordance
23
with established public or private procedures,” and “the prior
administrative proceedings possessed the requisite ‘judicial
character’ such that they yielded decisions or findings that could
later be given preclusive effect.” (Y.K.A. Industries, Inc. v.
Redevelopment Agency of City of San Jose (2009) 174 Cal.App.4th
339, 361 (Y.K.A. Industries).) The doctrine is “a form of res
judicata, of giving collateral estoppel effect to the administrative
agency’s decision, because that decision has achieved finality due
to the aggrieved party’s failure to pursue the exclusive judicial
remedy for reviewing administrative action.” (Briggs v. City of
Rolling Hills Estates (1995) 40 Cal.App.4th 637, 646 [emphasis in
original].)
The doctrine of exhaustion of judicial remedies does not
apply under the circumstances alleged by plaintiffs. First, “an
employee seeking relief under . . . Government Code section
12653 is not required to exhaust judicial remedies by filing a
petition for a writ of mandamus before filing a civil action.”
(Taswell v. Regents of University of California (2018) 23
Cal.App.5th 343, 362 (Taswell).) For this reason alone, the trial
court erred in sustaining the entire demurrer for plaintiffs’
failure to exhaust judicial remedies.
Second, the exhaustion of judicial remedies doctrine does
not apply under either party’s theory of the case. Plaintiffs have
not contended that any administrative procedure was followed.
Thus, based on the facts alleged, there was no “administrative
decisionmaking process” requiring plaintiffs to “continue that
process to completion.” (Runyon, supra, 48 Cal.4th at p. 773.)
Moreover, USC insists that any staffing decision at VHH was
quasi-legislative, not quasi-judicial, so there is no indication that
there were “prior administrative proceedings” that possessed
24
“judicial character.” (Y.K.A. Industries, supra, 174 Cal.App.4th
at p. 361.)
Nevertheless, USC argues, “As it relates to quasilegislative action, courts are clear that a physician must first set
aside the hospital’s decision through ordinary mandamus, despite
any disparate impact on that particular physician.” In support of
this statement, USC string-cites eight cases, including Lewin,
Mateo-Woodburn, Hay, and Abrams, discussed above, none of
which discusses exhaustion of other remedies or requires a
plaintiff’s challenge to take a particular form.
USC also cites Centeno v. Roseville Community Hospital
(1979) 107 Cal.App.3d 62, in which the defendant hospital barred
the plaintiff physician from using the radiology facilities at the
hospital after contracting with an exclusive provider. The
plaintiff physician filed a complaint seeking “a declaratory
judgment, injunctive relief and damages.” (Id. at p. 65.) After a
bench trial, the court entered judgment for the hospital on all
causes of action. (Ibid.) The Court of Appeal affirmed the
judgment on the merits, and did not address any requirement
that the physician first seek a writ of mandamus. USC also
relies on Unnamed Physician v. Board of Trustees of Saint Agnes
Medical Center (2001) 93 Cal.App.4th 607, which discussed a
physician’s failure to exhaust administrative remedies following a
quasi-judicial hearing before filing a petition for writ of
mandamus. Moreover, the court stated that the physician’s
“failure to exhaust administrative remedies, in and of itself, will
not bar relief.” (Id. at p. 621.)
It is well established that “a case is authority only for a
proposition actually considered and decided therein.” (In re
Chavez (2003) 30 Cal.4th 643, 656.) The cases USC cites do not
25
support the position that, under the circumstances alleged in the
FAC, plaintiffs were required to file a petition for writ of mandate
rather than a complaint for damages. To the contrary, many of
these cases addressed the plaintiffs’ various causes of action,
such as Major, in which the court addressed the plaintiffs’
multiple theories, including violation of the Unruh Civil Rights
Act, breach of contract, and interference with plaintiffs’ business
relationships—without requiring the plaintiff to bring a writ of
mandate. (Major, supra, 71 Cal.App.4th at p. 1384.)
The parties disagree about the significance of the Supreme
Court’s opinion in Fahlen v. Sutter Central Valley Hospitals
(2014) 58 Cal.4th 655 (Fahlen), especially in the context of
plaintiffs’ first cause of action under section 1278.5. In that case,
the Supreme Court recognized its previous holdings that “persons
filing damage suits authorized by certain whistleblower
statutes—laws forbidding employer retaliation against workers
who have reported fraud, danger, corruption, waste, or
malfeasance—did not have to exhaust available administrative
and mandamus remedies before seeking relief in court.” (Id. at p.
660.) The court in Fahlen held that “when a physician claims,
under section 1278.5, that a hospital’s quasi-judicial decision to
restrict or terminate his or her staff privileges was itself a means
of retaliating against the physician ‘because’ he or she reported
concerns about the treatment of patients, the physician need not
first seek and obtain a mandamus judgment setting aside the
hospital’s decision before pursuing a statutory claim for relief.”
(Ibid.)
The physician plaintiff in Fahlen filed a complaint against
the defendant hospital and others alleging that “defendants had
caused his medical group (Gould) to fire him, had tried to run
26
him out of Modesto, and had terminated his staff privileges. . . .
[T]he complaint sought reinstatement to the Hospital’s medical
staff; a declaration of defendants’ bad faith; economic and
noneconomic compensation, including lost wages; costs and
attorney fees; punitive damages; and other appropriate relief
permitted by law.” (Fahlen, supra, 58 Cal.4th at p. 664.) In the
context of an anti-SLAPP motion to strike under Code of Civil
Procedure section 425.16, the defendants asserted that the
plaintiff’s “suit lacked probable merit because, when plaintiff
timely failed to seek direct judicial review of the decision by a
petition for mandamus, that decision became final, and plaintiff
could not thereafter attack it collaterally in this action.” (Id. at p.
665.)
The Supreme Court’s review was limited to the following
issue: “[W]hether, before a physician may commence a civil suit
alleging that a hospital’s quasi-judicial decision to terminate the
physician’s staff privileges was wrongfully retaliatory under
section 1278.5, the physician must first prevail in an
administrative mandamus proceeding to set the decision aside.”
(Fahlen, supra, 58 Cal.4th at p. 666.) The court held that “a
successful mandamus attack on the decision is not a necessary
condition to the filing of a section 1278.5 action.” (Ibid.)
In reaching its conclusion, the court stated that in a
whistleblower action, a “requirement that [a] plaintiff succeed in
overturning an allegedly retaliatory, as opposed to remedial,
administrative decision before filing a statutory action would
very seriously compromise the legislative purpose to encourage
and protect whistleblowers.” (Fahlen, supra, 58 Cal.4th at p.
678.) The court noted that section 1278.5 allows a plaintiff the
opportunity to “prove by a preponderance of evidence, to a
27
judicial fact finder, his or her distinct claim that there was a
forbidden retaliatory motive” in the defendant employer’s
decision. (Ibid.) The court noted that requiring judicial
exhaustion of an administrative decision before a whistleblower
could file a lawsuit could, in some instances, “flatly contradict the
provision of section 1278.5, subdivision (d)(1) that, for purposes of
a civil whistleblower suit, there is a ‘rebuttable presumption’ of
retaliatory motive if a discriminatory action is taken against a
hospital physician, with the knowledge of the facility’s
responsible staff, within 120 days after he or she has submitted a
protected grievance or complaint.” (Ibid.) The court concluded
that “a hospital staff physician who claims a hospital decision to
restrict or terminate his staff privileges was an act in retaliation
for his or her whistleblowing in furtherance of patient care and
safety need not seek and obtain a mandamus petition to overturn
the decision before filing a civil action under section 1278.5.” (Id.
at p. 687; see also Taswell, supra, 23 Cal.App.5th at p. 361 [“to
require a whistleblower complainant under [section 1278.5] to
exhaust judicial remedies by challenging an adverse
administrative decision through a petition for a writ of
mandamus ‘would be contrary to the evident legislative
intent.’”].)
Plaintiffs assert that under Fahlen, they were not required
to exhaust judicial remedies before filing an action under section
1278.5. USC argues that the hospital’s actions in Fahlen were
quasi-judicial, not quasi-legislative, and the court in Fahlen
stressed that it was addressing only the narrow issues before it.
(See Fahlen, supra, 58 Cal.4th at p. 685 [noting several
undecided issues relating to section 1278.5, and stating, “We
stress, however, that all these matters are beyond the scope of
28
the narrow issue on which we granted review.”].) We find that
plaintiffs have the better argument here. Fahlen reasoned that
the purposes of section 1278.5’s protections for whistleblowers
would be undermined by requiring the plaintiff to adhere to the
very procedures that were being employed, as pretext, to retaliate
against him. (Id. at p. 677.) Under this reasoning, there is no
material difference between retaliatory actions against
whistleblowers, whether deemed quasi-judicial or quasilegislative.
Thus, we find no support for USC’s contention that
plaintiffs were required to bring their claims in a writ of mandate
under Code of Civil Procedure section 1085, or that plaintiffs’
claims were susceptible to demurrer because they were not
asserted in that form. The trial court erred by sustaining the
demurrer on this basis.
C. Individual causes of action
The trial court did not address USC’s alternative argument
that the FAC did not state facts sufficient to constitute the
individual causes of action plaintiffs alleged. USC contends on
appeal that even if plaintiffs were not otherwise barred from
asserting their claims, the demurrer nonetheless should have
been sustained because the FAC “fails to state a claim under any
theory and cannot be cured by amendment.” Plaintiffs contend
that the FAC alleged sufficient facts to state causes of action
under section 1278.5, the CFCA, and the UCL. Plaintiffs do not
address their causes of action for wrongful discipline, intentional
interference with prospective economic advantage, or negligence.
We discuss the parties’ arguments below.
29
1. Section 1278.5
Section 1278.5 states, “The Legislature finds and declares
that it is the public policy of the State of California to encourage
patients, nurses, members of the medical staff, and other health
care workers to notify government entities of suspected unsafe
patient care and conditions.” (§ 1278.5, subd. (a).) To that end,
section 1278.5 prohibits a health care facility from
“discriminat[ing] or retaliat[ing], in any manner, against any
patient, employee, member of the medical staff, or any other
health care worker of the health facility because that person” has
“[p]resented a grievance, complaint, or report to the facility.”
(§ 1278.5, subd. (b)(1)(A).) “Section 1278.5 does not explicitly
limit the type of ‘grievance, complaint, or report’ for which
retaliation is prohibited to one involving concerns about the
quality of patient care,” but “such a limitation is implicit in other
provisions of the statute.” (Fahlen, supra, 58 Cal.4th at p. 667 fn.
6.) Thus, to establish a prima facie case under section 1278.5, a
plaintiff must show that he or she (1) presented a grievance,
complaint, or report to the hospital or medical staff (2) regarding
the quality of patient care and; (3) the hospital retaliated against
him or her for doing so. (§ 1278.5, subd. (b)(1).)
Here, plaintiffs alleged that Alborzi complained about the
defendants’ financial arrangements between December 2017 and
June 2018 by expressing “concerns regarding patient safety [and]
the presence of illegally incentivized decisions about patient care
by and among defendants.” Plaintiffs alleged that Alborzi
reported his concerns to VHH’s chief executive officer in February
and April 2018, and VHH’s chief medical officer in May 2018.
Plaintiffs alleged that in retaliation, defendants “stopped
providing Plaintiffs with on-call panel consultations and
30
eventually terminated the infectious disease on-call panel.” In
July 2018, the chief medical officer informed plaintiffs that the
on-call panel had been dissolved. Plaintiffs alleged that
defendants’ actions “resulted in loss of income to Plaintiffs.”
These facts are sufficient to support a cause of action under
section 1278.5.
USC argues that plaintiffs “did not engage in any form of
protected activity which could have triggered the statute,”
because the FAC does not include “allegations of any actual or
threatened harm to any patient,” and “the real, actual purpose
for Dr. Alborzi’s ‘complaints’ to [VHH] was merely to protect
[plaintiffs’] bottom line.” Plaintiffs assert that Alborzi’s
complaints constituted protected activity because the “improper
referral of patients . . . directly impacts quality of patient care.”
Although plaintiffs’ allegations regarding the impact of the
alleged wrongdoing on patient care are not particularly robust,
we find they are sufficient to meet the requirements of section
1278.5. The FAC stated that Alborzi expressed “concerns
regarding patient safety.” USC cites no authority, and we have
found none, suggesting that concerns about patient safety must
be alleged with particularity.
USC also asserts that section 1278.5 requires a showing of
“adverse employment action,” which plaintiffs did not allege
because they “admit there was no change in their medical staff
privileges or any demotion, suspension, termination, or
disciplinary action imposed of any kind.” USC argues that
plaintiffs’ “discontent with the financial impact of the Hospital’s
decision to stop using the call panel cannot support a retaliation
claim.” We disagree.
31
Section 1278.5 describes “discriminatory” action as
including, but not limited to, “discharge, demotion, suspension, or
any unfavorable changes in, or breach of, the terms or conditions
of a contract, employment, or privileges of the employee, member
of the medical staff, or any other health care worker of the health
care facility, or the threat of any of these actions.” (§ 1278.5,
subd. (d)(2).) If “unfavorable changes,” which may include the
“threat” of unfavorable actions, may constitute discriminatory
action under section 1278.5, then barring plaintiffs from
receiving patient referrals could constitute discriminatory action.
The Supreme Court in Shaw v. Superior Court (2017) 2
Cal.5th 983 (Shaw) noted that the Legislature considered a
variety of ways discriminatory action against a physician may
occur, in light of the fact that physicians and hospitals do not
always have employer/employee relationships. The court noted
that a bill to amend section 1278.5 was proposed in 2007 “in
order to extend to physicians and surgeons on the medical staffs
of hospitals or other health care facilities the protections against
discrimination and retaliation that the then-existing provisions of
section 1278.5 afforded to employees of health care facilities.” (Id.
at p. 1000 [emphasis in original].) A related bill analysis by the
Senate Judiciary Committee noted that according to the
California Medical Association, “examples of actions a hospital
can take to suppress physician-whistleblowers or to retaliate
against them” included “underwriting the salary and/or practice
expenses of a competing physician,” “recruiting competing
physicians to the community in the absence of a community
deficit for that specialty,” “establishing a medical practice
administrative service company for selected physicians and
charging below market rates so that the doctor keeps a higher
32
percentage of the collections and gains a competitive advantage,”
“inducing primary care physicians to refer patients to the
hospital outpatient facility for tests, bypassing the specialist’s
office-based testing (e.g., imaging and cardiac tests),” or
“developing investment partnerships with selected physicians
(surgery center, MRI center) that provide lucrative annual
returns on investment.” (Id. at pp. 1001-1002.) “In apparent
response” to these concerns, the Legislature amended the
remedies in section 1278.5 to include “‘any remedy deemed
warranted by the court pursuant to this chapter or any other
applicable provision of statutory or common law.’” (Id. at p. 1002;
§ 1278.5, subd. (g).) Thus, it appears that the Legislature
intended section 1278.5 to encompass a broad array of
discriminatory actions. The statute is not limited to revocation of
privileges or specific disciplinary actions, as USC contends.
USC also argues that plaintiffs failed “to establish
causation between any alleged adverse employment action and
Dr. Alborzi’s complaints.” This argument is specious. Plaintiffs
clearly alleged that dissolution of the on-call panel was
retaliatory. Moreover, section 1278.5, subdivision (d)(1) provides
that if “discriminatory action occurs within 120 days of the filing
of the grievance or complaint” by the member of the medical staff,
there is “a rebuttable presumption that discriminatory action was
taken . . . in retaliation against” that staff member. USC argues,
without citation to any authority, that plaintiffs are not entitled
to this presumption because the FAC states that Alborzi was
concerned about the financial arrangements for more than 120
days. This argument is unsupported and unpersuasive.
33
Plaintiffs therefore stated sufficient facts to support a cause
of action for violation of section 1278.5.2
2. California False Claims Act
“The CFCA permits the recovery of civil penalties and
treble damages from any person who knowingly presents a false
claim for payment to the state or a political subdivision.” (State
of California ex rel. Standard Elevator Co., Inc. v. West Bay
Builders, Inc. (2011) 197 Cal.App.4th 963, 973.) “The Legislature
designed the CFCA ‘“to prevent fraud on the public treasury,”’
and it ‘“should be given the broadest possible construction
consistent with that purpose.”’” (San Francisco Unified School
Dist. ex rel. Contreras v. Laidlaw Transit, Inc. (2010) 182
Cal.App.4th 438, 446.)
Government Code section 12653, part of the CFCA, states,
“Any employee, contractor, or agent shall be entitled to all relief
necessary to make that employee, contractor, or agent whole, if
that employee, contractor, or agent is discharged, demoted,
suspended, threatened, harassed, or in any other manner
discriminated against in the terms and conditions of his or her
employment because of lawful acts done by the employee,
2For the first time in their reply brief, plaintiffs suggested
specific ways they could amend their allegations that VHH’s
dissolution of the on-call panel was retaliatory. USC filed a
motion to strike these portions of the reply, arguing that
plaintiffs did not suggest these amendments in the trial court
and it was inappropriate for plaintiffs to assert them for the first
time in their reply brief. Plaintiffs filed an opposition and USC
filed a reply. We deny USC’s motion, but nonetheless disregard
the portions of plaintiffs’ reply brief suggesting new proposed
factual amendments because they are not relevant to our
analysis. (See Cal. Rules of Court, rule 8.204(e)(2)(C).)
34
contractor, agent, or associated others in furtherance of an action
under this section or other efforts to stop one or more violations of
this article.” (Gov. Code, § 12653, subd. (a).) “[A] plaintiff
alleging retaliation under the CFCA must show: ‘(1) that he or
she engaged in activity protected under the statute; (2) that the
employer knew the plaintiff engaged in protected activity; and (3)
that the employer discriminated against the plaintiff because he
or she engaged in protected activity.’” (McVeigh v. Recology San
Francisco (2013) 213 Cal.App.4th 443, 455.)
USC asserts that plaintiffs cannot have standing because
Government Code section 12653 is limited to “employees,
contractors, or agents,” and as a matter of law, plaintiffs were
none of these. Plaintiffs assert that this argument is “patently
absurd,” because case law and “common sense” hold that an
“individual working for or with an entity is either an employee or
an independent contractor of that entity.” Relying on competing
case law, the parties argue about whether or not physicians with
medical staff privileges can be classified as contractors or agents
of a hospital as a matter of law.
We decline to address these legal issues in a vacuum.
Plaintiffs failed to allege whether they were employees,
contractors, or agents of any of the defendants. Without such an
allegation, plaintiffs have failed to allege facts sufficient to show
that they have standing to assert a cause of action under
Government Code section 12653.
USC also contends that plaintiffs failed to allege facts to
show any protected activity under the CFCA. USC asserts that
plaintiffs’ claims are insufficient because they “do not allege
[plaintiffs] ever investigated alleged false claims or reported to
35
anyone that [VHH] had allegedly submitted a false or fraudulent
claim for payment.”
“[T]o constitute protected activity under the CFCA, the
employee’s conduct must be in furtherance of a false claims
action. [Citation.] The employee does not have to file a false
claims action or show a false claim was actually made; however,
the employee must have reasonably based suspicions of a false
claim and it must be reasonably possible for the employee’s
conduct to lead to a false claims action.” (Kaye v. Board of
Trustees of San Diego County Public Law Library (2009) 179
Cal.App.4th 48, 60; see also Mendiondo v. Centinela Hosp.
Medical Center (9th Cir. 2008) 521 F.3d 1097, 1104 [the plaintiff
was “engaged in protected activity if she reasonably believed that
[the defendant] was possibly committing fraud against the
government, and she investigated the possible fraud.”].)
Here, plaintiffs alleged in the FAC that the defendants’
financial arrangements violated state and federal law. In their
briefing on appeal, they assert that such allegations are sufficient
because “[v]iolation of either the Stark Law [42 U.S.C. § 1320a7b] or the Anti-Kickback Law in connection with Medicare claims
submitted is actionable under the False Claims Act.” However,
the FAC does not include allegations that these laws were
violated with respect to Medicare claims. Although plaintiffs
have alleged that they were attempting to address financial
wrongdoing, they have not connected that wrongdoing with any
alleged false claims. Thus, plaintiffs have failed to allege facts
sufficient to state a cause of action under the CFCA.
Typically, “leave to amend is liberally allowed as a matter
of fairness, unless the complaint shows on its face that it is
incapable of amendment.” (City of Stockton v. Superior Court
36
(2007) 42 Cal.4th 730, 747.) The cause of action is capable of
amendment. Thus, if the trial court had reached this issue and
denied leave to amend, it would have been an abuse of discretion.
(See, e.g., Campbell v. Regents of University of California (2005)
35 Cal.4th 311, 320 [“If we see a reasonable possibility that the
plaintiff could cure the defect by amendment, then we conclude
that the trial court abused its discretion in denying leave to
amend.”].) Because the trial court erred by sustaining the
demurrer on a different basis and never reached this issue,
plaintiffs have not had an opportunity to amend this claim. On
remand, therefore, we order the trial court to grant plaintiff leave
to amend this cause of action.
3. Unfair Competition Law
The UCL prohibits unfair competition, defined as “any
unlawful, unfair, or fraudulent business act or practice.” (Bus. &
Prof. Code, § 17200.) The statute’s “purpose is to protect both
consumers and competitors by promoting fair competition in
commercial markets for goods and services.” (Kasky v. Nike, Inc.
(2002) 27 Cal.4th 939, 949.) By defining unfair competition to
include any “‘unlawful . . . business act or practice’ (Bus. & Prof.
Code, § 17200, italics added), the UCL permits violations of other
laws to be treated as unfair competition that is independently
actionable.” (Ibid.)
In their UCL cause of action in the FAC, plaintiffs referred
to their general allegations that VHH and Concord entered into a
below-market contract for hospitalist services, Concord shared
ownership with Elevate, and Concord self-referred patients to
Elevate. Plaintiffs alleged that these actions violated four laws:
Business and Professions Code section 650, et seq., which
prohibits commissions or other consideration as compensation for
37
referring patients (Bus. & Prof. Code, § 650, subd. (a)); Health
and Safety Code section 445, which bars referrals of patients for
profit; Welfare and Institutions Code section 14107.2, which bars
kickbacks, bribes, or rebates relating to the referral of goods or
services; and Business and Professions Code section 2273,
subdivision (a), which bars “the employment of runners, cappers,
steerers, or other persons to procure patients.”
USC asserts that plaintiffs’ “sole allegation that these
statutes were violated by the Hospital is that it benefited from
the financial arrangements by saving money on hospitalist
services.” It argues that plaintiffs’ “conclusory allegations” do not
“support any claim that the Hospital improperly referred patients
to a physician.”
We find the allegations sufficient to state a cause of action.
Plaintiffs alleged that VHH benefitted from the kickback scheme
by saving money, and it entered into the contract for that
purpose. Plaintiffs were not required to allege, as USC asserts,
“how and why the contract was below fair market value, or how
the contract necessarily resulted in a fraudulent kickback
scheme.” Particularized fact pleading is not required for a UCL
claim. (See Quelimane Co. v. Stewart Title Guaranty Co. (1998)
19 Cal.4th 26, 46-47.)
4. Causes of action not addressed in plaintiffs’ briefs
Plaintiffs’ opening brief does not address their third cause
of action for wrongful discipline, fourth cause of action for
intentional interference with prospective economic advantage, or
sixth cause of action for negligence. Plaintiffs state in a footnote
in their opening brief, “Because the trial court’s ruling requires
reversal as a matter of law, and that the trial court be ordered to
instead deny the demurrer to the FAC in its entirety, this Court
38
need not reach the issue of whether Dr. Alborzi’s [sic] other
claims for wrongful discipline, interference with prospective
economic advantage, and negligence adequately state a claim.”
They assert in a footnote in their reply brief that “[r]esolution of
the sufficiency of the third, fourth, and sixth claims, which were
never reached or discussed by the trial court, could be left for the
trial court in the first instance if subsequently challenged by
[defendants].”
USC asserts that plaintiffs have abandoned these causes of
action by not addressing them on appeal. We agree. Although
our review of a demurrer ruling is de novo, our review “‘is limited
to issues which have been adequately raised and supported in
[appellants’ opening] brief.’” (WA Southwest 2, LLC v. First
American Title Ins. Co. (2015) 240 Cal.App.4th 148, 155.) Thus,
where a demurrer is sustained without leave to amend, the
appellant’s failure to address certain causes of action in the
complaint is deemed an abandonment of those causes of action.
(Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1, 9 fn. 2.)
We therefore find that plaintiffs have abandoned their causes of
action for wrongful discipline, intentional interference with
prospective economic advantage, and negligence.3
3In their reply brief, filed July 7, 2020, plaintiffs state that
they “very recently” discovered that the June 2019 judgment
included Concord and Elevate. They explain that they
“inadvertently mistook the demurrer by Concord and Elevate as a
second demurrer filed by” USC. They assert that judgment as to
Concord and Elevate should be reversed, because the trial court’s
dismissal of the case in its entirety was inappropriate in response
to demurrer by USC only. Because we reverse the judgment for
the reasons expressed herein, we do not reach this issue. Nor do

Outcome: The judgment is reversed, and the cause is remanded with directions to enter a new order as follows: The demurrer is sustained without leave to amend as to plaintiffs’ third cause of action for wrongful discipline, fourth cause of action for intentional interference with prospective economic advantage, and sixth cause of action for negligence. The demurrer is sustained with leave to amend as to plaintiffs’ second cause of action for violation of Government Code section 12653. The demurrer is overruled as to plaintiffs’ first cause of action for violations of Health and Safety Code section 1278.5, and fifth
cause of action for violations of Business and Professions Code section 17200, et seq. Plaintiffs are entitled to recover their costs on appeal.

Plaintiff's Experts:

Defendant's Experts:

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