Filed 6/2/03
IN THE SUPREME COURT OF CALIFORNIA
CIMMARON OLSZEWSKI, a Minor, etc., )
Plaintiff and Appellant,
S098409
v.
) Ct.App.
4/1
D034197
SCRIPPS HEALTH,
San
Diego
County
Defendant and Respondent.
Super. Ct. No. 728855
As a participant in the federal Medicaid program, the State of California has
agreed to abide by certain requirements imposed by federal law in return for
federal financial assistance in furnishing medical care to the needy. (See Harris v.
McRae (1980) 448 U.S. 297, 308.) The California Medical Assistance Program,
Medi-Cal (Welf. & Inst. Code, §§ 14000-14198),1 “represents California’s
implementation of the federal Medicaid program . . . .” (Robert F. Kennedy
Medical Center v. Belshé (1996) 13 Cal.4th 748, 751.) In implementing Medi-
Cal, our Legislature has enacted statutes authorizing a health care provider to
assert and collect on a lien for the full cost of its services against “any judgment,
award, or settlement obtained by” a Medicaid beneficiary. (§ 14124.791; see also
§ 14124.74.)
1
All further statutory references are to the Welfare and Institutions Code
unless otherwise indicated.
1
The Legislature enacted these statutes to alleviate the fiscal difficulties
faced by health care providers who, due to Medi-Cal payment limits, did not
receive full compensation for services rendered to Medicaid beneficiaries (see
Legis. Counsel’s Dig., Assem. Bill No. 812 (1985-1986 Reg. Sess.), 4 Stats. 1985,
Summary Dig., p. 241), and to give these providers an incentive “to seek out third-
party liability sources” (Assem. Health Com., Rep. on Assem. Bill No. 812 (1985-
1986 Reg. Sess.) Apr. 30, 1985, p. 2). As originally enacted in 1985, section
14124.791 allowed a provider to first bill Medi-Cal and, after receiving payment
from Medi-Cal, “to file a lien for the amount of unpaid charges against any
judgment, award, or settlement obtained by the beneficiary . . . .” (Stats. 1985, ch.
776, § 5, p. 2515.) Recognizing that this balance billing2 provision might conflict
with federal law, however, the Legislature provided that “[t]he provisions for
which appropriate federal waivers cannot be obtained [such as section 14124.791]
shall not be implemented.” (Stats. 1985, ch. 776, § 6, p. 2515.)
Because no federal waivers were obtained, the 1985 version of section
14124.791 was never implemented. (See Assem. Ways & Means Com.,
Republican analysis of Sen. Bill. No. 1719 (1991-1992 Reg. Sess.) Aug. 31, 1992,
p. 1.) In 1992, the Legislature sought to rectify this problem by revising section
14124.791. Under the 1992 version, a provider could recover on a lien “against
any judgment, award, or settlement obtained by the [Medicaid] beneficiary” for
the full cost of its services only after refunding the Medi-Cal payment.
(§ 14124.791.) Thus, the 1992 version permitted substitute billing—where the
provider substitutes recovery from a judgment or settlement obtained by the
2
As explained by the Court of Appeal, balance billing is “the practice of
billing patients for the balance remaining on a medical bill after deducting the
amount paid by Medi-Cal.”
2
beneficiary for recovery from Medi-Cal—and not balance billing. Unlike in 1985,
the Legislature did not condition implementation of the 1992 version on the
receipt of appropriate federal waivers.
Today we consider the constitutionality of the 1992 version of the provider
lien statute in the context of a lawsuit filed by a Medi-Cal beneficiary against her
medical provider. In this case, the health care provider filed a lien pursuant to
section 14124.791 against the Medi-Cal beneficiary. Challenging the legality of
the provider’s practice of filing such liens, the beneficiary filed a class action
lawsuit against the provider, alleging unfair competition and various tort claims.
As the basis for her claims, the beneficiary contended federal law preempted
section 14124.791 and rendered invalid any liens filed pursuant to that section.
The trial court dismissed the action, holding that federal Medicaid law did not
preempt section 14124.791. We now conclude that the trial court erred in part
because federal law does preempt California’s provider lien statutes. Nonetheless,
we affirm the judgment of the trial court dismissing the class action with prejudice
because the claims either fall within the safe harbor described in Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th
163, 182 (Cel-Tech), or are barred by the litigation privilege contained in Civil
Code section 47, subdivision (b).
FACTS
Because we review this case after the trial court sustained a general
demurrer, we accept as true all material allegations of the complaint. (See Charles
J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800, 807.) The
complaint alleges the following facts:
Cimarron Olszewski (plaintiff) is a minor and a Medi-Cal beneficiary who
received emergency medical care from Scripps Health (defendant), a medical care
provider that participates in the Medi-Cal program. Defendant received and
3
accepted Medi-Cal payments for the medical care it provided to plaintiff.
Defendant, either directly or through its collection agent, Medical Liabilities
Recoveries, Inc. (MLR) (collectively defendants),3 also asserted a lien against “the
personal injury claims, judgments or settlements of” plaintiff pursuant to Welfare
and Institutions Code section 14124.791 and Civil Code section 3045.
In response, plaintiff filed this class action, alleging that defendants had no
legal right to assert and collect on such liens in light of federal Medicaid law
governing provider reimbursement and third party liability. Plaintiff asserted
causes of action for: (1) violations of the unfair competition law (hereafter UCL;
Bus. & Prof. Code, § 17200 et. seq.), (2) trespass to chattels, (3) negligent
misrepresentation, and (4) fraud. In addition to restitution and damages, plaintiff
sought an order declaring that the liens asserted by defendants against her and the
other class members were “unlawful, unenforceable, and uncollectible” because
federal law preempted the California statutes authorizing these liens. Plaintiff also
sought to enjoin defendants from asserting these liens in the future.
Defendants demurred, and the trial court sustained the demurrers without
leave to amend. The court concluded that defendants had a statutory right to assert
the liens under section 14124.791 and that federal law did not preempt this
statutory right. The court also held that plaintiff’s tort claims were barred because
the filing of the liens was “a privileged communication protected by Civil Code
[section] 47[, subdivision] (b)(2).”
The Court of Appeal disagreed with the trial court on the preemption issue
and concluded that federal Medicaid law preempted section 14124.791. The court,
3
Because we stayed the action as to MLR after it filed for bankruptcy, the
opinion refers to Scripps Health as defendant and Scripps Health and MLR
collectively as defendants.
4
however, agreed that plaintiff’s claims were barred because: (1) section
14124.791 provided a safe harbor from plaintiff’s UCL claim under Cel-Tech,
supra, 20 Cal.4th at page 182; and (2) defendants’ assertion of the liens was
protected by the litigation privilege. In determining the proper disposition, the
court concluded that the trial court had found an “imbedded claim for declaratory
relief as to the validity of section 14124.791” and had “declared section 14124.791
was not preempted by federal law” and defendants’ lien against plaintiff was valid.
The Court of Appeal then modified the declaratory relief portion of the trial
court’s judgment to reflect its findings that federal law preempted section
14124.791 and defendants’ lien was invalid and unenforceable and affirmed the
judgment “as so modified.”
Both plaintiff and defendants petitioned this court and we granted review.
DISCUSSION
I
A
As an initial matter, we find that the Court of Appeal acted properly in
modifying the judgment to include a declaration that defendants’ lien against
plaintiff was invalid, but erred in adding a declaration that federal law preempted
Welfare and Institutions Code section 14124.791. In her complaint, plaintiff
adequately pled a claim for declaratory relief under Code of Civil Procedure
section 1060 even though she did not separately identify such a cause of action.
(Bank of America etc. v. Gillett (1940) 36 Cal.App.2d 453, 455 (Gillett) [affirming
a judgment awarding declaratory relief even though the plaintiff failed to
“designate[] his complaint one for ‘Declaratory Relief’ ”]; see also 5 Witkin, Cal.
Procedure (4th ed. 1997) § 810, p. 265 [“because there are no forms of action, a
declaration of rights will be upheld if the complaint states sufficient facts even
though the pleader did not think he was proceeding under C.C.P. 1060 and did not
5
appropriately label his complaint”].) The complaint asked the court to adjudge the
rights and duties of plaintiff and defendants with respect to defendants’ lien and
alleged facts establishing an “actual controversy” appropriate for declaratory
relief. (Wellenkamp v. Bank of America (1978) 21 Cal.3d 943, 947.) As such,
plaintiff was entitled to a declaration of her rights and duties under defendants’
lien. (See Gillett, at p. 455.) And, upon concluding that defendants’ lien against
plaintiff was invalid and unenforceable, the Court of Appeal properly modified the
judgment to include a declaration to that effect. (See Essick v. City of Los Angeles
(1950) 34 Cal.2d 614, 624-625 [modifying a judgment to include declaratory relief
even though the trial court dismissed the complaint without specifically awarding
declaratory relief].)
The Court of Appeal, however, erred by modifying the judgment to include
a declaration addressing the constitutionality of section 14124.791. In her
complaint, plaintiff never sought a declaration that federal law preempted section
14124.791; she only sought a declaration that defendants’ liens were invalid.
Thus, in modifying the judgment, the court should have only included a
declaration that defendants’ lien against plaintiff was invalid, unenforceable, and
uncollectible—and not that section 14124.791 was preempted.
Nonetheless, the Court of Appeal did not exceed its jurisdiction by deciding
the preemption issue. In a convoluted argument, defendant contends the court’s
erroneous resolution of the “imbedded” declaratory relief claim somehow
invalidated its finding of preemption because defendant had no opportunity to
litigate the claim. Defendant is mistaken. In determining whether defendants’ lien
was invalid, the Court of Appeal had to determine whether federal law preempted
California’s provider lien statutes. Moreover, the trial court, in sustaining the
demurrers, expressly held that federal law did not preempt section 14124.791.
Thus, the Court of Appeal properly considered and decided the preemption issue
6
in reviewing the trial court’s order sustaining the demurrers. In any event,
defendant fully briefed the preemption issue before the Court of Appeal and the
trial court. Under these circumstances, defendant can hardly claim that it lacked
an adequate opportunity to litigate the preemption issue.
B
Similarly, defendant’s contention that the Court of Appeal erred by
deciding the federal preemption issue without making the State of California a
party to this action must be rejected. Code of Civil Procedure section 389,
subdivision (a) states in relevant part that “[a] person who is subject to service of
process and whose joinder will not deprive the court of jurisdiction over the
subject matter of the action shall be joined as a party in the action if . . . in his
absence complete relief cannot be accorded among those already parties . . . .”
Thus, “[a] person is an indispensable party [only] when the judgment to be
rendered necessarily must affect his rights.” (Hartman Ranch Co. v. Associated
Oil Co. (1937) 10 Cal.2d 232, 262.) In this case, the court could grant the relief
requested by plaintiff without injuring or affecting the rights of the State of
California. Plaintiff did not assert an imbedded claim for declaratory relief
seeking to invalidate section 14124.791. (See ante, at p. 6.) Rather, she sought to
invalidate the liens filed by defendants pursuant to that section.4 The State of
California had no interest in these liens and could not recover on them. The fact
that an adverse ruling against defendants may have a financial impact on the state
or require a finding that federal law preempts a California statute does not make
the state an indispensable party. (See Hartenstine v. Superior Court (1987) 196
4
Plaintiff also sought restitution, damages, injunctive relief, and attorney
fees and costs.
7
Cal.App.3d 206, 222 [finding that the State of California was not an indispensable
party despite its “interest in enforcing its laws”].)
II
We now consider defendant’s substantive challenge to the Court of
Appeal’s declaration that defendants’ lien against plaintiff filed pursuant to section
14124.791 was invalid, unenforceable, and uncollectible. Plaintiff concedes that
California law permits provider liens against “the personal injury claims,
judgments or settlements” of Medicaid beneficiaries. She, however, contends
these liens, such as the liens filed by defendants, are unenforceable because federal
law preempts the statutes authorizing these liens. We agree.
A
We begin with a brief overview of Medicaid and Medi-Cal. In 1965,
Congress established Medicaid by enacting title XIX of the Social Security Act
(42 U.S.C. §§ 1396-1396v; see Schweiker v. Gray Panthers (1981) 453 U.S. 34,
36 (Schweiker)). “The Medicaid program . . . is a cooperative endeavor in which
the Federal Government provides financial assistance to participating States to aid
them in furnishing health care to needy persons. Under this system of
‘cooperative federalism,’ [citation] if a State agrees to establish a Medicaid plan
. . . the Federal Government agrees to pay a specified percentage of ‘the total
amount expended . . . as medical assistance under the State plan . . . .’ ” (Harris v.
McRae, supra, 448 U.S. at p. 308.) Participation is voluntary, but “once a State
elects to participate, it must comply with the requirements of Title XIX.” (Id. at
p. 301.)
Although the requirements of title XIX are described in detail in 42 United
States Code section 1396a (see Pennsylvania Medical Society v. Snider (3d Cir.
1994) 29 F.3d 886, 889 (Snider)), construing these requirements is often easier
said than done. “The Social Security Act is among the most intricate ever drafted
8
by Congress. Its Byzantine construction . . . makes the Act ‘almost unintelligible
to the uninitiated.’ ” (Schweiker, supra, 453 U.S. at p. 43.) Indeed, a federal
judge once described the Medicaid statutes as “an aggravated assault on the
English language, resistant to attempts to understand it.” (Friedman v. Berger
(S.D.N.Y. 1976) 409 F.Supp. 1225, 1226, affd. (2d Cir. 1976) 547 F.2d 724.)
Because of the extraordinary complexity of these statutes, Congress has
“conferred on the Secretary [of Health and Human Services (hereafter Secretary)]
exceptionally broad authority to prescribe standards for applying certain sections
of the Act.”5 (Schweiker, at p. 43; see, e.g., 42 U.S.C. § 1396a(a)(4)(A) [“[a] state
plan for medical assistance must . . . provide . . . such methods of administration
. . . as are found by the Secretary to be necessary for the proper and efficient
operation of the plan”].) Regulations promulgated by the Secretary are therefore
“entitled to ‘legislative effect’ ” unless they exceed his or her statutory authority or
are arbitrary or capricious. (Schweiker, at p. 44.) “State Medicaid plans must
[therefore] comply with requirements imposed both by the [Social Security] Act
itself and by the Secretary” (id. at p. 37), and must “be approved by the Secretary”
(Elizabeth Blackwell Health Center v. Knoll (3d Cir. 1995) 61 F.3d 170, 172
(Elizabeth Blackwell Center)).
Despite these requirements, “[t]he [Medicaid] program was designed to
provide the states with a degree of flexibility in designing plans that meet their
individual needs. [Citation.] As such, states are given considerable latitude in
formulating the terms of their own medical assistance plans.” (Addis v. Whitburn
5
“The Secretary has delegated his rulemaking power to the Health Care
Financing Administration (HCFA) [citation], now called the Centers for Medicare
and Medicaid Services [citation].” (Wisconsin Dept. of Health & Family Servs. v.
Blumer (2002) 534 U.S. 473, 479, fn. 1.) For simplicity, the opinion refers to the
Secretary as the entity charged with interpretive authority.
9
(7th Cir. 1998) 153 F.3d 836, 840.) “Congress intended that states be allowed
flexibility in developing procedures for administering their statutory obligations
under the Medicaid statute and their state plans.” (Elizabeth Blackwell Center,
supra, 61 F.3d at p. 178.)
With this backdrop in mind, we now turn to the Medicaid statutes and
regulations governing provider reimbursement and third party liability. A state
Medicaid plan must “establish a scheme for reimbursing health care providers for
the medical services provided to needy individuals, and must require that payment
for Medicaid services be made only to the provider of the services or, under
certain conditions, to the beneficiary of the services.” (Banks v. Secretary of
Indiana Family & Social Services Admin. (7th Cir. 1993) 997 F.2d 231, 234; see
also 42 U.S.C. § 1396a(a)(13); 42 C.F.R. § 447.10 (2002).)6 The plan and the
state agency administering that plan must ensure that the rate is “reasonable and
adequate to meet the costs that must be incurred by efficiently and economically
operated facilities to provide services in conformity with State and Federal laws,
regulations, and quality and safety standards.” (42 C.F.R. § 447.250(a).) To
receive reimbursement from a state Medicaid plan, a health care provider must
enter into a provider agreement with the state Medicaid agency. (See 42 U.S.C.
§ 1396(a)(27).)
Because “Medicaid is essentially a payer of last resort” (Rehabilitation
Assn. of Virginia, Inc. v. Kozlowski (4th Cir. 1994) 42 F.3d 1444, 1447), federal
Medicaid law requires state plans to recover from liable third parties whenever
possible. A “[t]hird party” is “any individual, entity or program that is or may be
liable to pay all or part of the expenditures for medical assistance furnished under
6
Hereafter, all further citations to the Code of Federal Regulations are to the
2002 edition unless otherwise indicated.
10
a State plan.” (42 C.F.R. § 433.136.) The state Medicaid agency must “take all
reasonable measures to ascertain the legal liability of third parties . . . .” (42
U.S.C. § 1396a(a)(25)(A).) “[I]n any case where such a legal liability is found to
exist after medical assistance has been made available on behalf of the individual
and where the amount of reimbursement the State can reasonably expect to
recover exceeds the costs of such recovery, the State or local agency [must] seek
reimbursement for such assistance to the extent of such legal liability . . . .” (42
U.S.C. § 1396a(a)(25)(B).) To that end, the state plan must provide for the
mandatory assignment of the beneficiary’s rights “to payment for medical care
from any third party” to the state agency. (42 U.S.C. § 1396k(a)(1)(A); see also
42 U.S.C. § 1396a(a)(45); 42 C.F.R. §§ 433.145, 433.146.)
Thus, when a health care provider submits a Medicaid claim, the state
Medicaid agency must first ascertain whether a third party may be liable. “If the
agency has established the probable existence of third party liability at the time the
claim is filed, the agency must reject the claim and return it to the provider for a
determination of the amount of liability . . . . When the amount of liability is
determined, the agency must then pay the claim to the extent that payment allowed
under the agency’s payment schedule exceeds the amount of the third party’s
payment.”7 (42 C.F.R. § 433.139(b)(1).) “If the probable existence of third party
liability cannot be established or third party benefits are not available to pay the
recipient’s medical expenses at the time the claim is filed, the agency must pay the
full amount allowed under the agency’s payment schedule.” (42 C.F.R.
§ 433.139(c).) The agency must then pursue “recovery of reimbursement” from
that third party. (42 C.F.R. § 433.139(d)(2).)
7
There are some exceptions not applicable here. (See 42 C.F.R.
§ 433.139(b)(2)-(3).)
11
While federal law requires the state Medicaid agency to obtain full
reimbursement of Medicaid payments whenever possible, it strictly limits the
ability of providers to obtain reimbursement for their services. Even though
Medicaid payments are typically lower than the amounts normally charged by
providers for their services (see McAmis v. Wallace (W.D.Va. 1997) 980 F.Supp.
181, 182), “[a] State plan must provide that the Medicaid agency must limit
participation in the Medicaid program to providers who accept, as payment in full,
the amounts paid by the agency plus any deductible, coinsurance or copayment
required by the plan to be paid by the individual” (42 C.F.R. § 447.15, italics
added).8 Section 1396a(a)(25)(C) of title 42 United States Code Service then
provides “that in the case of an individual who is entitled to medical assistance
under the State plan with respect to a service for which a third party is liable for
payment, the person furnishing the service may not seek to collect from the
individual (or any financially responsible relative or representative of that
individual) payment of an amount for that service” except under specific
8
Title 42 Code of Federal Regulations part 447.15 states: “A State plan
must provide that the Medicaid agency must limit participation in the Medicaid
program to providers who accept, as payment in full, the amounts paid by the
agency plus any deductible, coinsurance or copayment required by the plan to be
paid by the individual. However, the provider may not deny services to any
eligible individual on account of the individual’s inability to pay the cost sharing
amount imposed by the plan in accordance with § 431.55(g) or § 447.53. The
previous sentence does not apply to an individual who is able to pay. An
individual’s inability to pay does not eliminate his or her liability for the cost
sharing charge.”
12
circumstances and in limited amounts defined by the statute.9 (Italics added; see
also 42 C.F.R. § 447.20(a).)10
To comply with these federal requirements, Medi-Cal has imposed certain
limitations on provider reimbursement. Under section 14019.3, subdivision (c),
“[u]pon presentation of the Medi-Cal card or other proof of eligibility, the
9
Title 42 United States Code Service section 1396a(a)(25)(C) states: “A
State plan for medical assistance must— [¶] . . . [¶] (25) provide— [¶] . . . [¶]
(C) that in the case of an individual who is entitled to medical assistance under the
State plan with respect to a service for which a third party is liable for payment,
the person furnishing the service may not seek to collect from the individual (or
any financially responsible relative or representative of that individual) payment of
an amount for that service (i) if the total of the amount of the liabilities of third
parties for that service is at least equal to the amount payable for that service under
the plan (disregarding section 1916 [42 USCS § 1396o]), or (ii) in an amount
which exceeds the lesser of (I) the amount which may be collected under section
1916 [42 USCS § 1396o] or (II) the amount by which the amount payable for that
service under the plan (disregarding section 1916 [42 USCS § 1396o] exceeds the
total of the amount of the liabilities of third parties for that service.”
10
Title 42 Code of Federal Regulations part 447.20(a) states: “A State plan
must provide for the following: [¶] (a) In the case of an individual who is
eligible for medical assistance under the plan for service(s) for which a third party
or parties is liable for payment, if the total amount of the established liability of
the third party or parties for the service is— [¶] (1) Equal to or greater than the
amount payable under the State plan (which includes, when applicable, cost-
sharing payments provided for in §§ 447.53 through 447.56), the provider
furnishing the service to the individual may not seek to collect from the individual
(or any financially responsible relative or representative of that individual) any
payment amount for that service; or [¶] (2) Less than the amount payable under
the State plan (including cost sharing payments set forth in §§ 447.53 through
447.56), the provider furnishing the service to that individual may collect from the
individual (or any financially responsible relative or representative of the
individual) an amount which is the lesser of— [¶] (i) Any cost-sharing payment
amount imposed upon the individual under §§ 447.53 through 447.56; or [¶] (ii)
An amount which represents the difference between the amount payable under the
State plan (which includes, where applicable, cost-sharing payments provided for
in §§ 447.53 through 447.56) and the total of the established third party liability
for the services.”
13
provider shall submit a Medi-Cal claim for reimbursement . . . .” “Any provider
of health care services who obtains a label or copy from the Medi-Cal card or
other proof of eligibility . . . shall not seek reimbursement nor attempt to obtain
payment for the cost of those covered health care services from the eligible
applicant or recipient, or any person other than the department or a third-party
payor who provides a contractual or legal entitlement to health care services.”
(§ 14019.4, subd. (a).)
Despite these limitations on provider reimbursement, section 14124.791,
subdivision (a) provides that: “Subject to the director’s prior right of recovery, a
provider who has rendered services to a beneficiary because of an injury for which
a third party is liable and who has received payment under the Medi-Cal program
shall be entitled to file a lien for all fees for services provided to the beneficiary
against any judgment, award, or settlement obtained by the beneficiary or the
director against that third party. A provider may only recover upon the lien if the
provider has made a full reimbursement of any fees paid by the department [the
state agency that administers Medi-Cal] for those services.” “In the event of
judgment or award in a suit or claim against a third party or carrier,” the provider
may collect on the lien.11 (§ 14124.74.) We now consider whether federal law
preempts these provider lien statutes.
11
“If the action or claim is prosecuted by the beneficiary alone, . . . [a]fter
payment of . . . expenses and attorney’s fees the court or agency shall, on the
application of the director, allow as a first lien against the amount of the
settlement, judgment, or award the reasonable value of additional benefits
provided to the beneficiary under the Medi-Cal program, as provided in
subdivision (d) of Section 14124.72, and as a second lien, the amount of any
claims, pursuant to Section 14019.3, owed to a provider, as provided in Section
14124.791.” (§ 14124.74, subd. (a).) “If the action or claim is prosecuted both by
the beneficiary and the director, . . . [a]fter payment of . . . expenses and attorney’s
fees, the court or agency shall first apply out of the balance of the judgment or
(footnote continued on next page)
14
B
As acknowledged by plaintiff, Welfare and Institutions Code sections
14124.791 and 14124.74 authorized the liens filed by defendant. Nonetheless,
plaintiff contends the liens are unenforceable because federal Medicaid statutes
and regulations limiting provider reimbursement—title 42 United States Code
Service section 1396a(a)(25)(C) and 42 Code of Federal Regulations parts 447.15
and 447.20—preempt these California statutes.12 We agree.
Under the United States Constitution, the “Laws of the United States . . .
shall be the supreme Law of the Land; and the Judges in every State shall be
bound thereby, any Thing in the Constitution or Laws of any State to the Contrary
notwithstanding.” (U.S. Const., art. VI, cl. 2.) “Since . . . McCulloch v. Maryland
(1819) 17 U.S. (4 Wheat.) 316, 427, ‘it has been settled that state law that conflicts
with federal law is “without effect.” ’ ” (Smiley v. Citibank (1995) 11 Cal.4th 138,
147 (Smiley), affd. (1996) 517 U.S. 735, quoting Cipollone v. Liggett Group, Inc.
(footnote continued from previous page)
award an amount sufficient to reimburse the director the full amount of the
reasonable value of benefits provided on behalf of the beneficiary under the Medi-
Cal program, and then an amount sufficient to reimburse a provider who has filed
a lien for any claims for services rendered to the beneficiary, as provided under
Section 14124.791.” (§ 14124.74, subd. (b).)
12
Defendant notes that some courts have “questioned whether the Supremacy
Clause even applies to spending power legislation like Medicaid.” (See, e.g.,
Westside Mothers v. Haveman (E.D.Mich. 2002) 133 F.Supp.2d 549, 562, revd.
(6th Cir. 2002) 289 F.3d 852, 865; Brogdon ex rel. Cline v. National Healthcare
Corp. (N.D.Ga. 2000) 103 F.Supp.2d 1322, 1339 (Brogdon); but see Frazar v.
Gilbert (5th Cir. 2002) 300 F.3d 530, 550 [finding that laws passed under
Congress’s spending clause powers are the supreme law of the land]; Missouri
Child Care Assn. v. Cross (8th Cir. 2002) 294 F.3d 1034, 1041 [same]; Antrican v.
Odom (4th Cir. 2002) 290 F.3d 178, 188 [same].) Because defendants do not
actually raise this issue, we decline to consider it here.
15
(1992) 505 U.S. 504, 516 (Cipollone).) And both federal statutes and regulations
may have preemptive effect. (See Fidelity Federal Sav. & Loan Assn. v. de la
Cuesta (1982) 458 U.S. 141, 153 [“Federal regulations have no less pre-emptive
effect than federal statutes”].)
A federal statute or regulation may preempt state law in three situations,
commonly referred to as (1) express preemption, (2) field preemption, and (3)
conflict preemption. “ ‘First, Congress can define explicitly the extent to which its
enactments pre-empt state law.’ [Citations.] ‘Second, in the absence of explicit
statutory language, state law is pre-empted where it regulates conduct in a field
that Congress intended the Federal Government to occupy exclusively.’
[Citations.] ‘Finally, state law is pre-empted to the extent that it actually conflicts
with federal law.’ [Citations.]” (Smiley, supra, 11 Cal.4th at pp. 147-148, fn.
omitted, quoting English v. General Electric Co. (1990) 496 U.S. 72, 79
(English).)
A state law actually conflicts with federal law “where it is impossible for a
private party to comply with both state and federal requirements [citation], or
where state law ‘stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.’ ” (English, supra, 496 U.S. at p. 79,
quoting Hines v. Davidowitz (1941) 312 U.S. 52, 67.) “What is a sufficient
obstacle is a matter of judgment, to be informed by examining the federal statute
as a whole and identifying its purpose and intended effects.” (Crosby v. National
Foreign Trade Council (2000) 530 U.S. 363, 372.)
Although federal law may preempt state law, “[c]ourts are reluctant to infer
preemption, and it is the burden of the party claiming that Congress intended to
preempt state law to prove it.” (Elsworth v. Beech Aircraft Corp. (1984) 37 Cal.3d
540, 548.) Where Congress has legislated in a field traditionally occupied by the
States, “we start with the assumption that the historic police powers of the States
16
were not to be superseded by the Federal Act unless that was the clear and
manifest purpose of Congress.” (Rice v. Sante Fe Elevator Corp. (1947) 331 U.S.
218, 230.) “This assumption provides assurance that ‘the federal-state balance’
[citation] will not be disturbed unintentionally by Congress or unnecessarily by the
courts.” (Jones v. Rath Packing Co. (1977) 430 U.S. 519, 525.) In applying this
assumption, courts should narrowly interpret the scope of Congress’s “intended
invalidation of state law” whenever possible. (Medtronic, Inc. v. Lohr (1996) 518
U.S. 470, 485 (Medtronic), see also Cipollone, supra, 505 U.S. at p. 518 [holding
that the presumption against preemption “reinforces the appropriateness of a
narrow reading of” the federal statute’s preemptive effect].)
In this case, the California statutes at issue address a subject traditionally
regulated by the states—public health and the costs of medical care. (See New
York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.
(1995) 514 U.S. 645, 661; Downhour v. Somani (6th Cir. 1996) 85 F.3d 261, 265;
Medical Society of the State of New York v. Cuomo (2d Cir. 1992) 976 F.2d 812,
816; Brogdon, supra, 103 F.Supp.2d at p. 1332.) “The regulation of public health
and the cost of medical care are virtual paradigms of matters traditionally within
the police powers of the state.” (Medical Society, at p. 816.) This is true even
though California enacted these statutes as part of its implementation of the federal
Medicaid program. Contrary to plaintiff’s assertion, Medicaid is not a “field”
traditionally legislated by Congress. Rather, by enacting the Medicaid statutes,
Congress legislated in the field of public health—a field traditionally regulated by
the states. (See ibid.) The presumption against preemption therefore applies.
(Rice v. Santa Fe Elevator Corp., supra, 330 U.S. at p. 230.)
Indeed, the very nature of the Medicaid program triggers a presumption
against preemption. The Medicaid program is “based on a scheme of cooperative
federalism.” (King v. Smith (1968) 392 U.S. 309, 316.) Under this scheme, a
17
participating state creates and administers its own plan which must be approved by
the Secretary. (See Elizabeth Blackwell Center, supra, 61 F.3d at pp. 172, 178.)
Thus, the participating state works in tandem with the federal government in
pursuit of a common purpose—the provision of medical care to the needy.
“Where[, as here,] coordinate state and federal efforts exist within a
complementary administrative framework, and in the pursuit of common purposes,
the case for federal pre-emption becomes a less persuasive one.” (New York State
Dept. of Social Services v. Dublino (1973) 413 U.S. 405, 421.)
With these standards in mind, we now consider plaintiff’s contention that
federal Medicaid law actually conflicts with and therefore preempts California’s
provider lien statutes.
When determining the preemptive effect of federal law, we are guided by
the United States Supreme Court’s “oft-repeated comment . . . that ‘[t]he purpose
of Congress is the ultimate touchstone’ in every pre-emption case.” (Medtronic,
supra, 518 U.S. at p. 485, quoting Retail Clerks v. Schermerhorn (1963) 375 U.S.
96, 103.) “Congress’ intent, of course, primarily is discerned from the language of
the pre-emption statute and the ‘statutory framework’ surrounding it.”
(Medtronic, at p. 486, quoting Gade v. National Solid Wastes Management Assn.
(1992) 505 U.S. 88, 111.) “Also relevant, however, is the ‘structure and purpose
of the statute as a whole,’ [citation] as revealed not only in the text, but through
the reviewing court’s reasoned understanding of the way in which Congress
intended the statute and its surrounding regulatory scheme to affect business,
consumers, and the law.” (Medtronic, at p. 486, quoting Gade, at p. 98.)
Where, as here, Congress enacted the preemption statute pursuant to its
spending power, Congress must “speak with a clear voice . . . .” (Pennhurst State
School & Hosp. v. Halderman (1981) 451 U.S. 1, 17.) “[I]f Congress desires to
condition the States’ receipt of federal funds, it ‘must do so unambiguously . . .
18
enabl[ing] the States to exercise their choice knowingly, cognizant of the
consequences of their participation.’ ” (South Dakota v. Dole (1987) 483 U.S.
203, 207, quoting Pennhurst, at p. 17.) “There can . . . be no knowing acceptance
if a State is unaware of the conditions or is unable to ascertain what is expected of
it.” (Pennhurst, at p. 17.) Thus, in exercising its spending power, Congress must
unambiguously state that it is imposing an obligation and clearly define the scope
of that obligation. In light of this need for congressional clarity and the
presumption against preemption, any ambiguity in the Medicaid statutes and
regulations must be construed against preemption.
We therefore begin by reviewing the history and language of the relevant
federal statutes and regulations. (See Medtronic, supra, 518 U.S. at p. 486.) In
creating Medicaid, Congress sought “to provide medical assistance to persons
whose income and resources are insufficient to meet the costs of necessary care
and services.” (Atkins v. Rivera (1986) 477 U.S. 154, 156.) Congress also
intended “[t]he program . . . to be the payor of last resort; that is, other available
third party resources must be used before the Medicaid program pays for the care
of an individual eligible for Medicaid.” (Medicaid Program; State Plan
Requirements and Other Provisions Relating to State Third Party Liability
Programs, 55 Fed.Reg. 1423-1424 (Jan. 16, 1990).)
At the time Congress first enacted Medicaid, health care providers often
supplemented below-cost payments from the state with contributions from the
needy patient or his or her relatives. (See Resident v. Noot (Minn. 1981) 305
N.W.2d 311, 313.) Recognizing that any amount charged directly to a Medicaid
beneficiary for medical services would “interfere with the [beneficiary’s] access to
the medical attention he needs” (Yanez v. Jones (D.Utah 1973) 361 F.Supp. 701,
19
706), the Secretary promulgated 45 Code of Federal Regulations part 249.31
(1969) which eventually became 42 Code of Federal Regulations part 447.15.13
(See also Supplementation of Payments Made to Skilled Nursing Homes; Medical
Assistance, Notice of Interim Policies and Requirements, 33 Fed.Reg. 14894-
14895 (Oct. 4, 1968).) Like 42 Code of Federal Regulations part 447.15, this
regulation forced state plans to require providers to accept the Medicaid payment
as “payment in full” (45 C.F.R. § 249.31 (1969)) and to prohibit providers from
recovering from the beneficiary any amount exceeding the Medicaid payment (see
Yanez, at p. 706; Sargeant v. Commr. of Public Welfare, supra, 423 N.E.2d at
p. 761, fn. 12.)
In the nursing home context, however, “many states were unable to bear the
entire cost of providing medical care to the needy, notwithstanding the states’
receipt of federal funds.” (Resident v. Noot, supra, 305 N.W.2d at p. 313.)
Congress acknowledged that these states “depend[ed] upon the supplementation of
the State agency’s below-cost allowances for care with contributions from
relatives or the needy individual himself.” (Sen.Rep. No. 744, 1st Sess. (1967),
reprinted in 1967 U.S. Code Cong. & Admin. News, p. 3026.) But Congress
concluded that “[a]s a matter of public policy, it would be best for all concerned:
the needy individual, his relatives, the State agency, and the nursing home if the
reimbursement made by the State represented the reasonable cost or reasonable
charges for comparable services.” (Ibid.) The Secretary therefore delayed the
13
The regulation was originally published at 45 Code of Federal Regulations
part 249.31 (1969). (See Sargeant v. Commr. of Public Welfare (Mass. 1981) 423
N.E.2d 755, 761, fn. 12.) It was later moved to 42 Code of Federal Regulations
part 250.30(a)(6) (1972) (see Johnson’s Professional Nursing Home v.
Weinberger (5th Cir. 1974) 490 F.2d 841, 843, fn. 6) and then 42 Code of Federal
Regulations part 450.30(a)(8), before it became part 447.15 of title 42 of the Code
of Federal Regulations (43 Fed.Reg. 45185 (Sept. 29, 1978)).
20
implementation of the payment in full requirement for nursing homes but required
state plans to phase out their practice of supplementation within a reasonable
period of time.14 (See Johnson’s Professional Nursing Home v. Weinberger,
supra, 490 F.2d at p. 845; see also 33 Fed.Reg. 14895 (Oct. 4, 1968);
Supplementation of Payments Made to Skilled Nursing Homes; State Plan
Requirements, 34 Fed.Reg. 1397 (Jan. 29, 1969).)
In the 1970’s and 1980’s, Congress amended the Medicaid statutes to
permit some cost-sharing charges, such as copayments and deductibles. Under
these amendments, state plans could charge Medicaid beneficiaries certain
nominal cost-sharing amounts. (See Medicaid Program; Imposition of Cost
Sharing Charges Under Medicaid, 50 Fed.Reg. 23009 (May 30, 1985).) “The
basic intent of providing States with the option of imposing cost-sharing
requirements . . . [was] to prevent [beneficiary] over-utilization of health care
services covered under Medicaid by imposing a nominal payment obligation on
[beneficiaries].” (55 Fed.Reg. 1429 (Jan. 16, 1990).) In 1985, Congress enacted
42 United States Code section 1396a(a)(25)(C) to clarify “the responsibility of
Medicaid [beneficiaries] for copayments and deductibles when third parties are
14
As originally enacted, 45 Code of Federal Regulations part 249.31 (1969)
states: “A State plan for medical assistance under title XIX of the Social Security
Act must provide that participation in the program will be limited to providers of
service who accept, as payment in full, the amounts paid in accordance with the
fee structure, except that, with respect to payment for care furnished in skilled
nursing homes, existing supplementation programs will be permitted until
January 1, 1971, where the State has determined and advised the Secretary of
Health, Education, and Welfare that its payments for skilled nursing home services
furnished under the plan are less than the reasonable cost of such services
permitted under Federal regulations, and the State has, prior to 1971, provided the
Secretary with a plan for phasing out such supplementation within a reasonable
period after January 1, 1971.” (33 Fed.Reg. 14894 (Oct. 4, 1968).)
21
liable for payments on their behalf.”15 (Sen.Rep. No. 99-146, 2d Sess. (1985),
reprinted in 1986 U.S. Code Cong. & Admin. News, pp. 279-280.)
Pursuant to section 1396a(a)(25)(C) of title 42 of the United States Code,
the Secretary promulgated 42 Code of Federal Regulations part 447.20. “The
intent of this provision [was] to protect the Medicaid [beneficiary] from being
charged for a service in excess of the amounts allowed under the State plan after
considering the third party’s liability.” (55 Fed.Reg. 1428 (Jan. 16, 1990).) Parts
447.15 and 447.20 of 42 Code of Federal Regulations therefore had
complementary purposes. “Under § 447.15, the provider is limited to the amount
paid by the agency plus any deductible, coinsurance or copayment required by the
plan and is not entitled to collect additional payment from the State.” (55
Fed.Reg. 1428 (Jan. 16, 1990).) Meanwhile, part 447.20 “prohibits the provider
from seeking to collect from the Medicaid [beneficiary] any amount that exceeds
the amount, if any, allowed as [beneficiary] liability in the State plan
(§ 447.20(a)).” (55 Fed.Reg. 1428 (Jan. 16, 1990).)
As evidenced by this legislative history, the Secretary clearly intended to
bar a health care provider from recovering from a Medicaid beneficiary any
amount exceeding the cost-sharing charges allowed under the state plan. The
Secretary found it necessary to impose this limitation on provider recovery in
order to effectuate Congress’s intent and to insure medical care for the needy.
(See Yanez v. Jones, supra, 361 F.Supp. at p. 706.) As noted earlier, the Secretary
has “broad authority” to effectuate Congress’s intent in this context, and we must
give its regulations “ ‘legislative effect.’ ” (Schweiker, supra, 453 U.S. at pp. 43-
44.)
15
The Secretary has amended 42 Code of Federal Regulations part 447.15 to
permit the imposition of these cost-sharing charges.
22
Our review of the language of these federal statutes and regulations limiting
provider reimbursement in the context of the surrounding regulatory framework
confirms this intent. Where, as here, probable liability of a third party cannot be
established at the time the claim is filed, the state agency must pay the full amount
due under its payment schedule. (See 42 C.F.R. § 433.139(c).) Under 42 Code of
Federal Regulations part 447.15, the provider must “accept” this payment plus any
cost-sharing charges allowed under the plan as “payment in full.” Meanwhile, title
42 United States Code section 1396a(a)(25)(C) and 42 Code of Federal
Regulations part 447.20 (2002)—the corresponding regulation—prohibit providers
from collecting from “an individual who is entitled to medical assistance under the
state plan with respect to a service for which a third party is liable for payment” if
“the amount of the liabilities of the third parties . . . is” equal to or greater than the
amount payable under the state plan. (42 U.S.C. § 1396(a)(25)(C); see also 42
C.F.R. § 447.20.) If the amount of the liabilities of the third party is less than the
amount payable under the state plan, then the provider may collect from the
individual only the lesser of “[a]ny cost-sharing payment amount” (42 C.F.R.
§ 447.20(a)(2)(i)) or “[a]n amount which represents the difference between the
amount payable under the State plan . . . and the total of the established third party
liability for the services” (42 C.F.R. § 447.20(a)(2)(ii); see also 42 U.S.C.
§ 1396a(a)(25)(C)).
Read together, these statutes and regulations are unambiguous and limit
provider collections from a Medicaid beneficiary to, at most, the cost-sharing
charges allowed under the state plan, even when a third party tortfeasor is later
found liable for the injuries suffered by that beneficiary. (See Mallo v. Public
Health Trust of Dade Co. (S.D.Fla. 2000) 88 F.Supp.2d 1376, 1385 (Mallo) [42
U.S.C. § 1396a(a)(25)(C) requires “the health care provider to collect from the
Medicaid patient no more than the amount of the Medicaid payment”].) Thus, a
23
health care provider may, at most, recover a “nominal” amount from the
beneficiary. (42 U.S.C. § 1396o(a)(3) [“any deduction, cost sharing, or similar
charge imposed under the plan . . . will be nominal in amount”].)
By contrast, under sections 14124.791 and 14124.74, a provider, after
refunding the Medi-Cal payment, may recover the full customary charge for its
services through a lien on the beneficiary’s property—i.e., his or her recovery for
lost wages or pain and suffering. Because this customary charge is usually, if not
always, greater than the amount payable under Medicaid (see McAmis v. Wallace,
supra, 980 F.Supp. at p. 182), these sections allow the provider to recover from
the beneficiary an amount greater than the nominal cost-sharing charges allowed
under the state plan. Because sections 14124.791 and 14124.74 allow the provider
to recover more than these cost-sharing charges from the beneficiary, they cannot
coexist with federal law and stand as an obstacle to the accomplishment of
Congress’s intent. (See English, supra, 496 U.S. at p. 79.)
While federal statutes and regulations do not bar a provider from recovering
from liable third parties, we reject defendant’s contention that there is no
collection from the beneficiary for purposes of federal law when a provider
collects on a lien pursuant to Welfare and Institutions Code sections 14124.791
and 14124.74. “A lien is a charge imposed in some mode other than by a transfer
in trust upon specific property by which it is made security for the performance of
an act.” (Civ. Code, § 2872, italics added.) In this case, a lien filed under Welfare
and Institutions Code section 14124.791 imposes a charge on the entire judgment,
compromise, or settlement obtained by the Medicaid beneficiary, and the entire
award otherwise accruing to the beneficiary may be used to satisfy the lien. Thus,
a provider’s recovery on the lien may encompass the portion of the judgment,
compromise, or settlement compensating the beneficiary for, among other things,
lost wages and pain and suffering—and not just the portion compensating her for
24
medical expenses.16 As such, Welfare and Institutions Code sections 14124.791
and 14124.74 necessarily allow the provider to assert an interest in the personal
property of the Medicaid beneficiary. (See Martin ex. rel. Hoff v. City of
Rochester (Minn. 2002) 642 N.W.2d 1, 16 (Martin) [claims “which accrue to the
medical assistance recipient as a result of the injuries that necessitated the medical
care . . . are the personal property of the medical assistance recipient”]; cf. Code
Civ. Proc., § 695.030, subds. (a), (b)(2) [stating that “[a] cause of action for money
or property that is the subject of a pending action or special proceeding” is the
“property of the judgment debtor” and may be “subject to enforcement of a money
judgment”].) And they do not give the provider the right to collect its fees directly
from the third party tortfeasor. Recovery on a provider lien filed pursuant to
Welfare and Institutions Code section 14124.791 therefore comes from the
beneficiary—and not from the third party tortfeasor—for purposes of federal law.
Even assuming federal law is ambiguous on this point, the June 9, 1997,
policy clarification letter sent by the Acting Director of the Medicaid Bureau of
the HCFA to all state Medicaid directors confirms that sections 14124.791 and
14124.74 conflict with federal law. Where a federal regulation is ambiguous, “an
agency’s interpretation of its own regulation is entitled to deference.”
(Christensen v. Harris Co. (2000) 529 U.S. 576, 588 (Christensen).) As “the
Secretary’s attempt to give interpretive guidance to the states in advance of their
submission of state Medicaid plans” (Elizabeth Blackwell Center, supra, 61 F.3d
at p. 181, fn. omitted), this letter is a policy directive entitled to considerable
16 Section
14124.791,
subdivision (c) does limit “[t]he provider’s claim for
reimbursement for fees . . . to the amount of the fees less 25 percent, which
represents the provider’s reasonable share of attorneys’ fees for prosecution of the
action and of the cost of litigation expense.”
25
deference (see id. at pp. 181-182 [according great deference to a policy directive
issued by the Director of the Medicaid Bureau of the HCFA]).17 In the letter, the
acting director stated that “[f]ederal law would not preclude the practice of
providers pursuing payment in tort situations in excess of Medicaid
reimbursement” as long as a state satisfies two conditions. First, the state must
assure that Medicaid is made whole before the provider recovers any money.
Second, the state must protect the assets of Medicaid beneficiaries by limiting
provider recovery to the portion of the award specifically allocated for the
beneficiary’s medical expenses.
Although sections 14124.791 and 14124.74 meet the first condition, they
do not meet the second. Under these statutes, the entire award obtained by the
Medicaid beneficiary is subject to a lien filed under section 14124.791; the statutes
do not limit provider recovery to the portion of the award specifically allocated to
medical expenses. As the policy clarification observed, portions of the award
unrelated to medical expenses constitute the “general assets of the” beneficiary for
purposes of federal law. Even if the beneficiary may request an allocation of the
award, as suggested by defendant, nothing in the statutes insures that the
provider’s recovery will be limited to the portion of the award allocated to medical
expenses.18 Thus, the provider lien statutes do not satisfy the second condition
17
In contrast, the letter in Citizens Action League v. Kizer (9th Cir. 1989) 887
F.2d 1003, 1007, simply represented the views of an administrator obtained solely
for the purposes of the litigation. (See Irving v. United States (1st Cir. 1998) 162
F.3d 154, 166 [noting that the statements of an official policymaker are entitled to
greater deference than statements from administrators].)
18
Contrary to defendant’s assertion, the limitation on provider recovery found
in section 14109.3, subdivision (d) does not apply here. This section limits
provider recovery to the “fees . . . that any other contractual entitlement . . . is
obligated to pay the charges for the care provided the beneficiary.” (§ 14109.3,
(footnote continued on next page)
26
required by the policy clarification. Because the letter clearly states that any
scheme permitting provider recovery in excess of Medicaid reimbursement
without satisfying this condition violates federal law, sections 14124.791 and
14124.74 are preempted.19
Cases holding that a lien asserted by a state Medicaid agency against the
entire judgment, compromise or settlement of a Medicaid beneficiary “does not
violate the statutory prohibition against imposing a lien against a beneficiary’s
property” are inapposite. (Cricchio v. Pennisi (N.Y. 1997) 683 N.E.2d 301,
305.)20 These cases hold that the agency’s lien does not attach to the property of
(footnote continued from previous page)
subd. (d).) Because a third party tortfeasor is not a “contractual entitlement,”
section 14109.3, subdivision (d) is inapplicable.
19
Mercy Hospital & Medical Center v. Farmers Ins. Group of Companies
(1997) 15 Cal.4th 213, does not dictate a contrary result. In Mercy Hospital, we
addressed Civil Code sections 3045.1 through 3045.6—which give hospitals a
statutory lien “against any judgment, compromise, or settlement received by the
patient from a third person responsible for his or her injuries.” (Mercy Hospital, at
p. 215.) In dicta, we stated that this lien was “California’s first statutory medical
lien in favor of a hospital against third persons liable for the patient’s injuries.”
(Id. at p. 217.) Even assuming our statement was accurate, we did not mean that
recovery on liens filed under section 14124.791 are collections from a third party
rather than the Medicaid beneficiary for purposes of federal law. Indeed, Mercy
Hospital did not involve federal law. Thus, it is inapplicable here. Accordingly,
we need not resolve any purported conflict between Nishihama v. City & Co. of
San Francisco (2001) 93 Cal.App.4th 298 and Swanson v. St. John’s Regional
Medical Center (2002) 97 Cal.App.4th 245.
20 (See
also
Calvanese v. Calvanese (N.Y. 1999) 710 N.E.2d 1079, 1081
[following Cricchio v. Pennisi, supra, 683 N.E.2d 301]; S.S. v. State (Utah 1998)
972 P.2d 439, 442 [“Payments made by a third party do not legally become the
property of the recipient until after a valid settlement, which necessarily must
include reimbursement to Medicaid”]; Wilson v. Washington (Wash. 2000) 10
P.3d 1061, 1066 [“Because the [State Medicaid agency] does not have a lien on
‘property’ of the recipient, the state statute permitting this lien is not in conflict
(footnote continued on next page)
27
the beneficiary because the beneficiary, by statute, has to assign to the agency
“any rights he or she has to seek reimbursement from any third party up to the
amount of medical assistance paid.” (Cricchio, at p. 304.) “Because the injured
Medicaid [beneficiary] has assigned its recovery rights to [the state agency], and
[the agency] is subrogated to the rights of the beneficiary [citations], the
settlement proceeds are resources of the third-party tortfeasor that are owed to [the
agency].” (Id. at p. 305.) The state agency therefore “steps in and puts a lien on
the recovery before it becomes the property of the Medicaid [beneficiary].”
(Wilson v. Washington, supra, 10 P.3d at p. 1066, italics added.)
Medicaid beneficiaries do not, however, have to assign to providers their
right to recover from third parties. Thus, a provider does not have a direct cause
of action against a third party tortfeasor and may not independently recover any
amount from that tortfeasor. Consequently, a lien filed under section 14124.791
does not attach until after the judgment, compromise, or settlement becomes the
property of the Medicaid beneficiary. Recovery of any amount not allocated to
medical expenses therefore constitutes a collection from the beneficiary’s personal
property. Because the lien allows the provider to recover from the beneficiary an
amount exceeding the nominal cost-sharing charges allowed by federal Medicaid
law, the lien cannot coexist with federal law and stands as an obstacle to the
accomplishment of the objectives of Medicaid.
While no California courts have addressed the preemption question (but see
Palumbo v. Myers (1983) 149 Cal.App.3d 1020, 1031, fn. 10 [acknowledging the
(footnote continued from previous page)
with the federal statute”]; but see Martin, supra, 642 N.W.2d at p. 16 [finding that
a lien asserted by the state Medicaid agency constitutes a lien against “the personal
property of the” Medicaid beneficiary in violation of federal law].)
28
“lurking preemption question”]), our finding of preemption comports with
decisions reached by other jurisdictions. In Public Health Trust of Dade Co. v.
Dade Co. School Bd. (Fla.Dist.Ct.App. 1997) 693 So.2d 562, 567, a Florida Court
of Appeal found that federal law preempted a state regulation analogous to
Welfare and Institutions Code section 14124.791. Under this regulation, a
provider could recover “third-party benefits on behalf of Medicaid and after
Medicaid has been made whole, ‘any excess third-party benefits collected by a
provider are permitted to be applied to provider charges that exceed Medicaid
payment . . . .’ ” (Public Health Trust, at p. 564, quoting Fla.Admin.Code § 59G-
7.055, subd. (6).) Invalidating the regulation, the court concluded that it was “in
direct conflict with federal [M]edicaid laws . . . which provide that when a medical
provider accepts payment from Medicaid, such payment constitutes ‘payment in
full.’ ” (Public Health Trust, at p. 566.)
Using similar reasoning, the Seventh Circuit Court of Appeals barred a
provider from suing a Medicaid beneficiary for the full cost of its services even
though the provider was willing to refund the Medicaid payment. (Evanston
Hospital v. Hauck (7th Cir. 1993) 1 F.3d 540, 544 (Hauck).) In Hauck, a provider
was paid by the state Medicaid agency. After the patient obtained a multimillion
dollar judgment, the provider sued the Medicaid beneficiary and the state agency,
seeking a declaration that the provider could refund the Medicaid payment and sue
the beneficiary for the full cost of its services. Citing various state and federal
statutes, including 42 United States Code section 1396a(a)(25), the Seventh
Circuit Court of Appeals concluded that the provider could not recover from the
beneficiary once it received payment from Medicaid. (Hauck, at pp. 543-544.)
Although Hauck did not involve a state statute that expressly authorized provider
recovery from a beneficiary, its conclusion is equally applicable here.
29
A federal Florida District Court also used this reasoning to hold that a
Medicaid beneficiary may sue a provider under title 42 United States Code section
1983. (See Mallo, supra, 88 F.Supp.2d at p. 1391.) In Mallo, a provider sought to
recover more than the Medicaid payment by asserting a lien for the full costs of its
services against any recovery obtained by a Medicaid beneficiary. The court
found that the patient could sue the provider for asserting this lien because “the
structure of [section] 1396a(a)(25)(C) creates a third-party beneficiary contractual
obligation on the part of the health care provider to collect from the Medicaid
patient no more than the amount of the Medicaid payment.” (Id. at p. 1385, italics
added.) “Once a health care provider commits to Medicaid assistance for a
patient, the provider is barred from billing the patient for an amount in excess of
the State’s Medicaid disbursement.” (Id. at p. 1387.)
These cases establish that a provider that treats a Medicaid beneficiary may
not recover from that beneficiary an amount exceeding the Medicaid payment by
asserting a lien against the beneficiary’s entire recovery from a third party
tortfeasor. Defendant does not cite, and we could not find, any case law to the
contrary. In fact, virtually every case addressing the federal Medicaid statutes and
regulations governing provider reimbursement holds that “[u]nder federal law,
medical service providers must accept the state-approved Medicaid payment as
payment-in-full, and may not require that patients pay anything beyond that
amount.” (Barney v. Holzer Clinic, Ltd. (6th Cir. 1997) 110 F.3d 1207, 1210.)21
21 (See,
e.g.,
Rehabilitation Assn. of Virginia v. Kozlowski, supra, 42 F.3d at
p. 1447 [“Service providers who participate in the Medicaid program are required
to accept payment of the state-denoted Medicaid fee as payment in full for their
services, i.e., they are required to take assignment, and may not attempt to recover
any additional amounts elsewhere”]; Snider, supra, 29 F.3d at p. 889 [“Medicaid
service providers . . . must accept the Medicaid payment as payment in full, and
may not ask the Medicaid patient to pay any money beyond that amount”]; Banks
(footnote continued on next page)
30
By finding that federal law preempts sections 14124.791 and 14124.74 and, in
doing so, renders defendant’s lien invalid, we merely join this chorus.
Defendant’s contention that federal law prohibits only balance billing—and
not the substitute billing authorized by sections 14124.791 and 14124.74—is not
persuasive. We acknowledge that liens filed pursuant to section 14124.791 are not
strictly a form of balance billing because the lien holder must refund the Medi-Cal
payment before recovering on them. But nothing in the language or history of the
federal statutes and regulations restricting provider recovery from Medicaid
beneficiaries limits their restrictions to balance billing. The mere fact that “[t]hese
restrictions are commonly known as the prohibition against ‘balance billing’ ”
does not mean that these restrictions only prohibit balance billing. (Palumbo v.
Myers, supra, 149 Cal.App.3d at p. 1025.)
The Secretary’s approval of California’s Medicaid plan does not dictate a
contrary conclusion. Even assuming this approval “is entitled to great weight and
deference” (RCJ Medical Services, Inc. v. Bonta (2001) 91 Cal.App.4th 986, 1010
(RCJ Medical); see also Garfield Medical Center v. Belshé (1998) 68 Cal.App.4th
798, 808), nothing in the record indicates that the Secretary approved California’s
provider lien provisions or that California even submitted these provisions to the
Secretary for approval. Thus, the Secretary’s approval of California’s plan does
(footnote continued from previous page)
v. Secretary of Indiana Family & Social Services Admin., supra, 997 F.2d at p.
243 [“a Medicaid provider is prohibited from seeking payment from a Medicaid
recipient of amounts not reimbursed by the state program”]; New York City Health
& Hospitals Corp. v. Perales (2d Cir. 1992) 954 F.2d 854, 856 [“Those doctors
and hospitals who are willing to treat Medicaid patients must agree to accept the
designated Medicaid rate and not ask the patient to pay any money beyond that
amount”].)
31
not mean the Secretary approved sections 14124.791 and 14124.74. (See In re
Washington State Dept. of Social and Health Servs. (U.S.H.H.S.App.Div. 1996)
1996 WL 157123 [absent evidence the state submitted the specific provisions at
issue to the Secretary, approval of the state plan does not equate to agency
ratification of those provisions].) Indeed, the 1997 policy clarification strongly
suggests that the Secretary would not approve these lien statutes. (See ante, at
pp. 25-26.) In any event, the Secretary’s actions are only entitled to deference if
they are not arbitrary, capricious, an abuse of discretion, or in conflict with
governing law. (See RCJ Medical, at p. 1011.) And the Secretary’s
“interpretation of its own regulations” is only controlling if it is neither “ ‘ “plainly
erroneous [n]or inconsistent with the regulation.” ’ ” (Thomas Jefferson Univ. v.
Shalala (1994) 512 U.S. 504, 512.) Because sections 14124.791 and 14124.74
conflict with the plain language of governing federal statutes and regulations (see
ante, at pp. 24-26), the Secretary’s approval does not control here.
We also do not find the April 19, 1995 HCFA letter persuasive. In the
letter, Sharon Yee, Chief of the Program Operations Branch, Division of
Medicaid, HCFA, answered several questions posed by an attorney. Her letter
opined that “[n]o federal waiver [was] required for the implementation of [Welfare
and Institutions Code sections] 14124.791 and 14019.3” and that these sections do
not conflict with 42 Code of Federal Regulations part 447.15. Her conclusions,
however, are not persuasive because Yee did not consider all the relevant federal
statutes and regulations, including 42 United States Code section 1396a(a)(25)(C)
and part 447.20 of 42 Code of Federal Regulations. (See Christensen, supra, 529
U.S. at p. 587 [“[I]nterpretations contained in formats such as opinion letters are
‘entitled to respect’ . . . , but only to the extent that those interpretations have the
‘power to persuade’ ”].) Moreover, Yee’s letter predates and conflicts with the
1997 policy clarification issued by the Acting Director of the HCFA. Because an
32
agency’s institutional pronouncements command greater respect than the
pronouncements of an administrator, we decline to accord any deference to Yee’s
letter. (See Irving v. United States, supra, 162 F.3d at p. 166.) In any event,
federal law is not ambiguous and unequivocally prohibits California from
authorizing provider recovery on liens against the entire judgment or settlement
obtained by a Medicaid beneficiary from a third party tortfeasor. (See ante, at
pp. 24-26.) We therefore conclude that federal law preempts Welfare and
Institutions Code sections 14124.791 and 14124.74. (See Christensen, supra, 529
U.S. at p. 588 [holding that deference to an agency’s interpretation of its
regulations is only appropriate where the regulation is ambiguous].) These
provider lien statutes are therefore unconstitutional, and the California statute
limiting provider recovery from Medicaid beneficiaries in accordance with federal
Medicaid law controls. This statute prohibits providers from attempting to obtain
payment for their services directly from Medicaid beneficiaries. (See Welf. &
Inst. Code, § 14019.4, subd. (a).) Because defendant’s lien against plaintiff
constitutes such an attempt, it is invalid, unenforceable, and uncollectible.
But we do so reluctantly. By invalidating liens filed pursuant to section
14124.791, we give the third party tortfeasor a windfall at the expense of the
innocent health care provider. Because the provider may no longer assert a lien
for the full cost of its services, the Medicaid beneficiary may only recover the
amount payable under Medicaid as his or her medical expenses in an action
against a third party tortfeasor. (See Hanif v. Housing Authority (1988) 200
Cal.App.3d 635, 639-644 [where the provider has relinquished any claim to
additional reimbursement, a Medicaid beneficiary may only recover the amount
payable under the state Medicaid plan as medical expenses in a tort action].) As a
result, the tortfeasor escapes liability for the full amount of the medical expenses
he or she wrongfully caused. Such a result not only benefits the party who should
33
be responsible for the medical costs of the beneficiary at the expense of the
blameless provider, it also harms society as a whole. Because health care
providers cannot recover the full costs of their services from responsible
tortfeasors, they must either charge more to those innocent patients who can pay in
order to recoup their losses or stop providing medical care to the needy. In the
end, everybody suffers but the third party tortfeasor. We therefore urge the
Legislature to remedy this anomaly in a manner consistent with federal law.
III
Despite finding that federal law preempts the lien provisions, we must still
determine whether the trial court properly sustained defendant’s demurrer and
dismissed plaintiff’s entire action on other grounds. We conclude it did.
A
We begin with plaintiff’s unfair competition claim. In affirming the
dismissal of this claim, the Court of Appeal held that plaintiff’s “UCL claim is . . .
barred by Cel-Tech’s safe harbor protection.” Plaintiff contends there is no safe
harbor for defendant’s practice of filing liens under section 14124.791 if the lien
provisions are preempted by federal law. We disagree.
As relevant here, “[t]he UCL defines unfair competition as any unlawful,
unfair or fraudulent business practice . . . .” (Lazar v. Hertz Corp. (1999) 69
Cal.App.4th 1494, 1505; see also Bus. & Prof. Code, § 17200.) A business
practice is unlawful “if it is forbidden by any law . . . .” (People v. Duz-Mor
Diagnostic Laboratory (1998) 68 Cal.App.4th 654, 658.) A business practice,
however, may be unfair or fraudulent in violation of the UCL even if the practice
does not violate any law. (See Cel-Tech, supra, 20 Cal.4th at p. 180.)
In Cel-Tech, we considered a UCL claim for unfair—but not unlawful—
business practices and recognized a safe harbor from such claims for acts
expressly allowed by the Legislature. “If the Legislature has permitted certain
34
conduct or considered a situation and concluded no action should lie, courts may
not override that determination. When specific legislation provides a ‘safe
harbor,’ plaintiffs may not use the general unfair competition law to assault that
harbor.” (Cel-Tech, supra, 20 Cal.4th at p. 182.) Thus, “[a]cts that the Legislature
has determined to be lawful may not form the basis for an action under the unfair
competition law . . . .” (Id. at p. 183.) Nonetheless, “the Legislature’s mere
failure to prohibit an activity does not prevent a court from finding it unfair.” (Id
at p. 184.)
Although plaintiff concedes sections 14124.791 and 14124.74 expressly
permitted the liens filed by defendant, she contends these statutes do not provide a
safe harbor for defendant’s conduct because they conflict with federal law. This
contention is meritless.
We initially reject plaintiff’s contention that these statutes do not insulate
defendant’s conduct from a UCL claim because defendant violated federal
Medicaid law by filing the liens. According to plaintiff, the Cel-Tech safe harbor
cannot protect defendant from UCL claims for unlawful business practices. We,
however, need not determine whether the safe harbor applies to unlawful business
practices, because plaintiff cannot establish that defendant violated federal law.22
“Private providers of services . . . derive their obligations from state law and
through their contractual agreements with the states, not from title XIX.” (Stewart
v. Bernstein (5th Cir. 1985) 769 F.2d 1088, 1094, italics added.) Federal Medicaid
statutes and regulations do not impose “any obligation upon Medicaid providers.”
(Yanez v. Jones, supra, 361 F.Supp. at p. 707; see also Harding v. Summit Medical
Center (9th Cir. 2002) 41 Fed.Appx. 83, 84 [“[U.S.C.] § 1396a(a)(25)(C) . . . is
22
Plaintiff does not contend defendant’s filing of liens pursuant to sections
14124.791 and 14124.74 violated any California laws.
35
formulated as a requirement of a state plan; it imposes no independent obligation
on medical providers”].) Rather, they create “a duty which runs to the State
alone.” (Yanez, at p. 707.) “ ‘It is clear from the legislative history that . . . the
[Medicaid] legislation is primarily directed at the role of participating states in
providing medical care with the assistance of federal funds.’ ” (Solter v. Health
Partners of Philadelphia, Inc. (E.D.Pa. 2002) 215 F.Supp.2d 533, 540.) Because
federal Medicaid law governs states—and not providers—defendants did not and
could not violate federal law by filing liens under section 14124.791.
None of the cases cited by plaintiff hold to the contrary. In Hauck, the
Seventh Circuit Court of Appeals declared that the provider would violate Illinois
statutes—which were consistent with the requirements imposed by federal
Medicaid law—if it sought recovery from a Medicaid beneficiary after refunding
the Medicaid payment. (See Hauck, supra, 1 F.3d at pp. 542-543.) It did not hold
that the provider would violate federal law. Likewise, Samuel v. Calif. Dept. of
Health Servs. (N.D.Cal. 1983) 570 F.Supp. 566, 573, merely found that the state
Medicaid agency misconstrued its own regulation and enjoined the agency from
advising health care providers to follow its erroneous construction. It found no
violation of federal law by a provider. (Id. at p. 574.) Finally, the Court of Appeal
in Brillantes v. Superior Court (1996) 51 Cal.App.4th 323, 336-339, only
examined a provider’s obligations under certain California Medi-Cal statutes and
did not consider or discuss federal Medicaid law.
We also reject plaintiff’s contention that sections 14124.791 and 14124.74
do not provide a safe harbor from her UCL claim because our finding of
preemption should apply retroactively. By enacting these statutes, the Legislature
declared that provider liens were lawful so long as the statutes remained in effect.
(See Cel-Tech, supra, 20 Cal.4th at pp. 183-184.) Moreover, “retroactive
application of a decision disapproving prior authority on which a person may
36
reasonably rely in determining what conduct will subject the person to penalties,
denies due process.” (Moss v. Superior Court (1998) 17 Cal.4th 396, 429.)
Validly enacted statutes such as sections 14124.791 and 14124.74 undoubtedly
constitute such authority. Just as courts must presume “that the Legislature
intended . . . not to violate the Constitution, but to enact a valid statute within the
scope of its constitutional powers” (Miller v. Municipal Court (1943) 22 Cal.2d
818, 828), Californians should be able to presume that statutes enacted by the
Legislature are constitutional. Otherwise, we place our citizens in the untenable
position of guessing whether their conduct may subject them to penalty even when
the Legislature has expressly condoned it. (Cf. Michigan v. DeFillippo (1979) 443
U.S. 31, 37-38 [“A prudent officer . . . should not have been required to anticipate
that a court would later hold the ordinance unconstitutional”].) We therefore
conclude that sections 14124.791 and 14124.74 create a safe harbor protecting
defendant from plaintiff’s claim of unfair business practices.
Using similar reasoning, we find that plaintiff cannot state an unfair
competition claim premised on defendant’s alleged breach of its Medi-Cal
provider agreement. Assuming that the provider agreements in the record
accurately reflect defendant’s current agreement, they establish that “Part 3,
Division 9 of the Welfare and Institutions Code”—which includes sections
14124.791 and 14124.74—governs and supersedes any conflicting provisions in
the agreement.23 Sections 14124.791 and 14124.74 therefore provide defendant
with a safe harbor from unfair competition claims premised on any breach of its
provider agreement. Accordingly, we find that the trial court properly sustained
the demurrer to plaintiff’s unfair competition claim without leave to amend.
23
The two provider agreements submitted by plaintiff predate the 1992
enactment of section 14124.791.
37
B
We now turn to plaintiff’s tort claims. In affirming the dismissal of these
claims, the Court of Appeal held that the litigation privilege shielded defendant
from plaintiff’s tort claims. We agree.
The litigation privilege, as codified in Civil Code section 47, subdivision
(b), shields, among other things, any “publication or broadcast” made “[i]n any . . .
judicial proceeding.” The privilege is “absolute in nature” (Silberg v. Anderson
(1990) 50 Cal.3d 205, 215), and its “principal purpose . . . is to afford litigants and
witnesses . . . the utmost freedom of access to the courts without fear of being
harassed subsequently by derivative tort actions” (id. at p. 213). “Although the
litigation privilege was originally limited to shielding litigants, attorneys and
witnesses from liability for defamation [citations], it has been interpreted to apply
to virtually all torts except malicious prosecution.” (Kimmel v. Goland (1990) 51
Cal.3d 202, 209.)
“The usual formulation is that the privilege applies to any communication
(1) made in judicial or quasi-judicial proceedings; (2) by litigants or other
participants authorized by law; (3) to achieve the objects of the litigation; and (4)
that have some connection or logical relation to the action.” (Silberg v. Anderson,
supra, 50 Cal.3d at p. 212.) As a general rule, the privilege “ ‘applies only to
communicative acts and does not privilege tortious courses of conduct.’ ”
(LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 345, quoting Kupiec v. American
Internat. Adjustment Co. (1991) 235 Cal.App.3d 1326, 1331.) We have, however,
extended the privilege to “any publication . . . that is required [citation] or
permitted [citation] by law in the course of a judicial proceeding to achieve the
objects of the litigation, even though the publication is made outside the
courtroom and no function of the court or its officers is invoked.” (Albertson v.
Raboff (1956) 46 Cal.2d 375, 380-381.) Thus, our courts have extended the
38
protections of the litigation privilege to “the recordation of a notice of lis pendens”
(id. at p. 381), “the publication of an assessment lien” (Wilton v. Mountain Wood
Homeowners Assn., Inc. (1993) 18 Cal.App.4th 565, 570 (Wilton)), and “the filing
of a claim of mechanic’s lien in conjunction with a judicial proceeding to enforce
it” (Frank Pisano & Assocs. v. Taggart (1972) 29 Cal.App.3d 1, 25 (Pisano)).
Plaintiff concedes sections 14124.791 and 14124.74 permitted the liens
filed by defendant. Plaintiff does not dispute that defendant filed the liens to
achieve the objects of the litigation or that the liens are connected to litigation filed
by plaintiff and other class members. Thus, the litigation privilege shields
defendant’s assertion of liens pursuant to sections 14124.791 and 14124.74 from
plaintiff’s claims.24 (See Albertson v. Raboff, supra, 46 Cal.2d at pp. 380-381;
Wilton, supra, 18 Cal.App.4th at p. 570; Pisano, supra, 29 Cal.App.3d at p. 25.)
In reaching this conclusion, we reject plaintiff’s contention that defendant’s
practice of using these statutorily authorized liens “to seize funds” in violation of
federal law is noncommunicative conduct falling outside the litigation privilege.
The only tortious acts alleged by plaintiff were defendant’s assertion of liens
pursuant to section 14124.791. Plaintiff did not allege that defendant committed
any acts not authorized by sections 14124.791 and 14124.74. Thus, Limandri is
inapposite. (See Limandri v. Judkins, supra, 52 Cal.App.4th at p. 345 [finding that
the litigation privilege did not shield the defendant’s conduct because “the isolated
act of filing [the defendant’s] notice of lien . . . was only one act in the overall
course of conduct alleged in” the complaint].) Indeed, the gravamen of plaintiff’s
complaint is a communication—the assertion of liens pursuant to sections
24
Plaintiff did not assert a malicious prosecution claim. (See Kimmel v.
Goland, supra, 50 Cal.3d at p. 209.)
39
14124.791 and 14124.74—protected by the litigation privilege. (See Pacific Gas
& Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1132, fn. 12.)
We also find that defendant filed the liens as a “participant authorized by
law” notwithstanding plaintiff’s assertions to the contrary. (See Silberg v.
Anderson, supra, 50 Cal.3d at p. 212.) Although we hold that federal law
preempts sections 14124.791 and 14124.74 and invalidates defendant’s liens,
defendant undoubtedly had a legal right to assert the liens prior to our holding
here. As explained earlier, we refuse to penalize defendant for following validly
enacted statutes. (See ante, at pp. 36-37.)
Finally, we believe plaintiff distorts the impact of our application of the
litigation privilege in this case. Our holding is quite limited. We merely hold that
the assertion of liens as authorized by validly enacted California statutes is
shielded by the litigation privilege. This limited holding does not “pervert[] the
judicial process and place[] the court in the unfortunate position of shielding,
rather than addressing, wrongful conduct.” The cases cited by plaintiff are
inapposite. Neither Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94 nor
Yu v. Signet Bank/Virginia (1999) 69 Cal.App.4th 1377 involved liens filed
pursuant to validly enacted statutes or addressed the scope of the litigation
privilege. Accordingly, we find that the litigation privilege bars plaintiff’s claims.
40
DISPOSITION
We reverse the portion of the judgment of the Court of Appeal adding a
declaration that federal law preempts section 14124.791, but affirm the judgment
in all other respects.
BROWN, J.
WE CONCUR:
GEORGE,
C.J.
BAXTER,
J.
KENNARD,
J.
CHIN,
J.
MORENO,
J.
41
CONCURRING OPINION BY GEORGE, C.J.
I have signed the majority opinion, but I have done so on the understanding
that the opinion does not create the overbroad “safe harbor” to which Justice
Werdegar’s concurring opinion properly objects. I agree with Justice Werdegar
that a business whose on-going practices are found unlawful or unfair could not
complain, on fairness grounds, “of being enjoined from such violations” in the
future, even if the business’s past conduct was based on what seemed to be an
enforceable state law. (Conc. opn. of Werdegar, J., post, at p. 2.) And I also agree
that a grant of monetary relief “is not necessarily unfair merely because the
defendant business believed in good faith that its practice was lawful.” (Ibid.) In
my view, the majority opinion need not, and should not, be read as inconsistent
with these propositions.
GEORGE, C.J.
CONCURRING OPINION BY WERDEGAR, J.
I agree with the majority that California statutes purporting to authorize care
providers’ liens against Medi-Cal patients’ monetary recoveries from third parties
(Welf. & Inst. Code, §§ 14124.74, 14124.791) are unenforceable because they
conflict with federal law, and that plaintiff’s tort claims for relief based on
defendant’s having filed and asserted such liens are barred by the litigation
privilege of Civil Code section 47, subdivision (b). Under our precedents,
moreover, that privilege appears applicable to plaintiff’s cause of action under the
unfair competition law (Bus. & Prof. Code, § 17200 et seq.), as well as to her
causes of action for fraud, negligent misrepresentation, and trespass to chattels.
(Rubin v. Green (1993) 4 Cal.4th 1187, 1200-1204; Ribas v. Clark (1985) 38
Cal.3d 355, 364-365.)
I do not agree, however, with the majority’s creation of a broad due process
“safe harbor” for actions taken in reliance on preempted—and therefore invalid—
state laws. (Maj. opn., ante, at pp. 36-37.) In Cel-Tech Communications, Inc. v.
Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 182-183, this court
held a business practice made lawful by statute could not be judged “unfair” for
purposes of the unfair competition law. The shelter thus recognized was statutory
and drew protection from valid, enforceable California law. The majority’s safe
harbor, in contrast, is apparently founded on concepts of constitutional due process
1
and draws protection from state laws that, because they conflict with superior
federal law, are completely unenforceable.
Were this an action seeking to punish defendant for conduct approved by
facially valid state law, I might well agree that fundamental fairness, and hence the
constitutional guarantees of due process, would bar the action. (See Moss v.
Superior Court (1998) 17 Cal.4th 396, 429 [relating to penalties].) But Business
and Professions Code section 17203, which sets out the available remedies in a
private action under the unfair competition law, provides for neither criminal nor
civil penalties and allows no award of damages at all, much less punitive damages.
(Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173.) A
business whose practices are found unlawful or unfair could hardly complain, on
fairness grounds, of being enjoined from further such violations, even if the
practices were based on what seemed an enforceable state law. Even a grant of the
monetary relief available under Business and Professions Code section 17203
(“restor[ation] to any person in interest any money or property . . . acquired by
means of such unfair competition”) is not necessarily unfair merely because the
defendant business believed in good faith that its practice was lawful. “Rather, in
general, as between a person who is enriched as the result of his or her violation of
the law, and a person intended to be protected by the law who is harmed by its
violation, for the violator to retain the benefit would be unjust.” (Cortez v.
Purolator Air Filtration Products Co., supra, at p. 182 (conc. opn. of Werdegar,
J.).)
For these reasons, I concur in the result, but not all the reasoning, of the
majority opinion.
WERDEGAR, J.
2
See next page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion Olszewski v. Scripps Health
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 88 Cal.App.4th 1268
Rehearing Granted
__________________________________________________________________________________
Opinion No. S098409
Date Filed: June 2, 2003
__________________________________________________________________________________
Court: Superior
County: San Diego
Judge: J. Michael Bollman
__________________________________________________________________________________
Attorneys for Appellant:
Chavez & Gertler, Mark A. Chavez, Kim E. Card; Blumenthal Ostroff & Markham, Law Offices of
Sheldon A. Ostroff, Sheldon A. Ostroff, David R. Markham; Law Offices of Thomas J. Brandi and Thomas
J. Brandi for Plaintiff and Appellant.
Manjusha P. Kulkarni; Kimberly Lewis; Rebecca S. Gudeman; and Marilyn Holle for National Health Law
Program, Western Center on Law & Poverty, National Center for Youth Law and Protection & Advocacy,
Inc., as Amici Curiae on behalf of Plaintiff and Appellant.
The Sturdevant Law Firm, James C. Sturdevant, Mark T. Johnson; Hinton & Alfert and Scott H.Z. Sumner
for Consumer Attorneys of California as Amici Curiae on behalf of Plaintiff and Appellant.
__________________________________________________________________________________
Attorneys for Respondent:
Friestad & Giles, Deborah Giles and Leticia O. Trujillo for Defendant and Respondent.
Manatt, Phelps & Phillips, Barry S. Landsberg, Harvey L. Rochman and Wendy M. Conole for Catholic
Healthcare West and The Regents of the University of California as Amici Curiae on behalf of Defendant
and.
Catherine I. Hanson and Astrid G. Meghrigian for the California Medical Association as Amicus Curiae on
behalf of Defendant and Respondent.
Lois Richardson for California Healthcare Association as Amicus Curiae on behalf of Defendant and
Respondent.
Stream & Stream, Theodore K. Stream, Jamie E. Wrage and Tera Harden for Loma Linda University
Medical Center, Inc., as Amicus Curiae on behalf of Defendants and Respondents.
1
Counsel who argued in Supreme Court (not intended for publication with opinion):
Kim E. Card
Chavez & Gertler
42 Miller Avenue
Mill Valley, CA 94941
(415) 381-5599
Mark A. Chavez
Chavez & Gertler
42 Miller Avenue
Mill Valley, CA 94941
(415) 381-5599
Deborah Giles
Friestad & Giles
1010 Second Avenue, Suite 1820
San Diego, CA 92101
(619) 232-4433
Barry S. Landsberg
Manatt, Phelps & Phillips
11355 Olympic Boulevard
Los Angeles, CA 90064
(310) 312-4000
2
Opinion Information
| Date: | Docket Number: |
| Mon, 06/02/2003 | S098409 |
Parties
| 1 | Olszewski, Cimmaron (Plaintiff and Appellant) Represented by Thomas J. Brandi Law Offices of Thomas J. Brandi 44 Montgomery St., Suite 1050 San Francisco, CA |
| 2 | Olszewski, Cimmaron (Plaintiff and Appellant) Represented by Kim E. Card Chavez & Gertler 42 Miller Ave Mill Valley, CA |
| 3 | Olszewski, Cimmaron (Plaintiff and Appellant) Represented by Mark A. Chavez Chavez & Gertler 42 Miller Avenue Mill Valley, CA |
| 4 | Olszewski, Cimmaron (Plaintiff and Appellant) Represented by Sheldon Allan Ostroff Law Offices of Sheldon A. Ostroff 402 West Broadway, Suite 1330 San Diego, CA |
| 5 | Scripps Health (Defendant and Respondent) Represented by Christine Elaine Friestad Friestad & Giles 1010 2nd Ave #1820 San Diego, CA |
| 6 | Scripps Health (Defendant and Respondent) Represented by Deborah Giles Law Offices of Deborah Giles 4665 Alta Rica Drive La Mesa, CA |
| 7 | Medical Liability Recoveries, Inc. (Defendant and Respondent) Represented by Gary M. Orlansky Attorney At Law 1901 First Avenue, Suite 320 San Diego, CA |
| 8 | Consumer Attorneys Of California (Amicus curiae) Represented by James C. Sturdevant The Sturdevant Law Firm 475 Sansome Street, Suite 1750 San Francisco, CA |
| 9 | Consumer Attorneys Of California (Amicus curiae) Represented by Scott H Z Sumner Hinton & Alfert 1646 N. California Blvd., Suite 600 Walnut Creek, CA |
| 10 | California Medical Association (Amicus curiae) Represented by Astrid Gloria Meghrigian California Medical Assoc. 221 Main Street, 3rd Floor San Francisco, CA |
| 11 | National Health Law Program (Amicus curiae) Represented by Manjusha Prakash Kulkarni National Health Law Program 2639 So. LaCienega Blvd. Los Angeles, CA |
| 12 | Western Center On Law And Poverty (Amicus curiae) Represented by Kimberly Lewis Western Center on Law & Poverty 3701 Wilshire Blvd., Suite 208 los Angeles, CA |
| 13 | National Center For Youth Law (Amicus curiae) Represented by Rebecca Stephanie Gudeman National Center for Youth Law 405 14th St., 15th Fl. Oakland, CA |
| 14 | Protection And Advocacy (Amicus curiae) Represented by Marilyn Holle Protection And Advocacy 3580 Wilshire Blvd., Suite 902 Los Angeles, CA |
| 15 | Catholic Healthcare West (Amicus curiae) Represented by Barry S. Landsberg Manatt Phelps & Phillips, Llp 11355 Olympic Blvd. Los Angeles, CA |
| 16 | Regents Of The University Of California (Amicus curiae) |
| 17 | California Healthcare Association (Amicus curiae) Represented by Lois Jeanne Richardson CA Healthcare Assn. 1215 K Street, Suite 800 Sacramento, CA |
| Disposition | |
| Jun 2 2003 | Opinion: Affirmed in part/reversed in part |
| Dockets | |
| Jun 19 2001 | Petition for review filed by attorney for respondent Scripps Health. **40N** Attorney to send $200.00 filing fee. (6/20 fee received.) |
| Jun 19 2001 | Record requested |
| Jun 19 2001 | 2nd petition for review filed by attorney for appellant Cimmaron Olszewski. **40n** |
| Jun 20 2001 | Received Court of Appeal record two doghouses |
| Jun 20 2001 | Received: $200.00 filing fee from respondent Scripps Health. |
| Jul 9 2001 | Answer to petition for review filed by resp ScrippsHealth |
| Aug 13 2001 | Time Extended to grant or deny Petition for Review to 9-17-01 |
| Aug 29 2001 | Petition for Review Granted (civil case) Petitions granted. For purposes of briefing & oral argument, respondent Scripps Health is deemed petitioner to this court. Votes: George C.J., Kennard, Baxter, Werdegar, Chin & Brown JJ. |
| Sep 7 2001 | Application for Extension of Time filed to 10-29-01 for resp Scrippshealth to file the opening brief on the merits. |
| Sep 12 2001 | Certification of interested entities or persons filed by pltf/aplt Olszewski |
| Sep 14 2001 | Extension of Time application Granted to 10-29-01 for resp to file the opening brief on the merits. no further extensions contemplated. |
| Sep 14 2001 | Certification of interested entities or persons filed by counsel for resp Scripps |
| Oct 23 2001 | Filed: notice of bankruptcy stay from counsel for resp Medical Liabilities Recoveries. |
| Oct 30 2001 | Opening brief on the merits filed Respondent Scripps Health (40n) |
| Oct 30 2001 | Request for Judicial Notice filed Respondent Scripps Health's |
| Nov 7 2001 | Received letter from: Friestad & Giles dated 11/6/2001 enclosing page 44 of Respondent Scripps Health's Opening Brief on the Merits, which was inadvertently omitted when it was filed. |
| Nov 14 2001 | Stay order filed all further proceedings against Medical Liability Recoveries Inc. are stayed pursuant to 11 U.S.C. #362(a)(1). |
| Nov 14 2001 | Request for extension of time filed by aplt to file the ans. brief on the merits, to 12-28-01. |
| Nov 19 2001 | Extension of Time application Granted to 12-28-01 for aplt to file the answer brief on the merits. No further ext. will be granted. |
| Dec 28 2001 | Answer brief on the merits filed by aplt |
| Dec 28 2001 | Request for judicial notice filed (in non-AA proceeding) by aplt |
| Jan 10 2002 | Request for extension of time filed for resp to file the reply brief on the merits, to 1/31. |
| Jan 16 2002 | Extension of time granted to 1-31-02 for resp to file the reply brief on the merits. |
| Feb 1 2002 | Reply brief filed (case fully briefed) by counsel for resp Scripps Health (timely per Rule 40n) |
| Feb 26 2002 | Request for extension of time filed to 3-15-02 for Consumer Attorneys of Calif. to submit A/C brief. |
| Feb 28 2002 | Received application to file amicus curiae brief; with brief by Calif. Medical Association in support of resp |
| Mar 4 2002 | Extension of time granted to 3-15-02 for Consumer Attorneys of Calif. to submit the amicus brief. No further extensions of time will be granted. |
| Mar 4 2002 | Received application to file amicus curiae brief; with brief from National Health Law Program et al in support of aplt |
| Mar 5 2002 | Received application to file amicus curiae brief; with brief by California Healthcare Association in support of resp. (timely-Rule 40k) |
| Mar 5 2002 | Received application to file amicus curiae brief; with brief from Catholic Healthcare West and the Regents of the University of Calif. in support of resp. (timely-Rule 40k) |
| Mar 6 2002 | Permission to file amicus curiae brief granted by California Medical Association in support of resps. Answers may be filed w/in 20 days |
| Mar 6 2002 | Amicus Curiae Brief filed by: Calif. Medical Assn. in support of resps |
| Mar 6 2002 | Permission to file amicus curiae brief granted by National Health Law Program, et al in support of aplt. Answers may be filed w/in 20 days. |
| Mar 6 2002 | Amicus Curiae Brief filed by: National Health Law Program, et al in support of aplt. |
| Mar 7 2002 | Permission to file amicus curiae brief granted by Catholic Healthcare West et al. in support of resps. Answers may be filed w/in 20 days |
| Mar 7 2002 | Amicus Curiae Brief filed by: Catholic Healthcare West and U.C. Regents in support of resps. |
| Mar 7 2002 | Permission to file amicus curiae brief granted by Calif. Healthcare Association in support of resps. Answers may be filed w/in 20 days. |
| Mar 7 2002 | Amicus Curiae Brief filed by: Calif. Healthcare Assn in support of resps. |
| Mar 15 2002 | Received application to file amicus curiae brief; with brief from Consumer Attorneys of California in support of resp. |
| Mar 20 2002 | Permission to file amicus curiae brief granted by Consumer Attorneys of Calif. in support of resp. Answers may be filed w/in 20 days. |
| Mar 20 2002 | Amicus Curiae Brief filed by: Consumer Attorneys of Calif. in support of Resp. |
| Mar 27 2002 | Response to amicus curiae brief filed by resp Scripps to A/C Nat. Health law Prog., Western Center on Law & Poverty, Nat. Center for Youth Law, Protection & Advocacy. (timely per Rule 40k) |
| Mar 28 2002 | Response to amicus curiae brief filed by aplt to A/C of Catholic Healthcare West and Regents of U.C. (timely per Rule 40k) |
| Apr 2 2002 | Request for extension of time filed by resp Scripps to file ans. to A/C brief of Consumer Attys. of Calif., to 4-23. |
| Apr 2 2002 | Filed: Appellant's application re service per Bus. & Prof Code #17209, with proof of service. |
| Apr 10 2002 | Extension of time granted to 4-23-02 for resp Scripps to file the response to the A/C brief of Consumer Attorneys of California. No further extensions will be granted. |
| Apr 24 2002 | Response to amicus curiae brief filed by resp Scripps to A/C of Consumer Attys. (timely per CRC 40k) |
| Nov 22 2002 | Order filed Appellant's application for relief for failure to timely serve the Office of the A.G. pursuant to Business & Professions Code 17209 is hereby granted. |
| Dec 17 2002 | Received letter from: Friestad & Giles [ Scripps Health ] dated 12/12/2002 |
| Jan 15 2003 | Request Denied Respondent's request for supplemental briefing, submitted by letter dated December 12, 2002, is denied without prejudice to the right of any party to serve and file a supplemental brief, no later than 10 days before oral argument and not exceeding 10 pages, limited to the matters set forth in California Rules of Court, rule 29.3, paragraph 5. ***(see modification filed 1-17-03, which refers to rule 29.1(d), formerly rule 29.3 paragraph 5) |
| Jan 17 2003 | Order filed modification to order filed 1/15. (modification specifies CRC 29.1(d), formerly rule 29.3 paragraph 5) |
| Feb 3 2003 | Case ordered on calendar 3-13-03, 9am, S.F. |
| Feb 13 2003 | Filed: request of resp to divide oral argument time between two attorneys. |
| Feb 18 2003 | Filed: request of petnr to allocate oral argument time to A/C Catholic Healthcare |
| Feb 26 2003 | Order filed permission granted for aplt to allocate 10 min of oral argument time to Mark A. Chavez |
| Feb 26 2003 | Order filed Permission granted for resps to allocate 10 min oral argument time to A/C Catholic Healthcare West. |
| Mar 4 2003 | Received document entitled: Supplemental Brief (additional authorities) from resp Scripps Health |
| Mar 4 2003 | Received document entitled: Supplemental Brief (additional authorities) from aplt Olszewski |
| Mar 13 2003 | Cause argued and submitted |
| Apr 8 2003 | Request for judicial notice granted Appellant's request and Respondent's request. |
| May 5 2003 | Received letter from: counsel for resp Scripps, dated 5/1 |
| May 27 2003 | Received letter from: counsel for resp Scripps, dated May 20. |
| Jun 2 2003 | Opinion filed: Affirmed in part, reversed in part Majority Opinion By Brown, J. -- joined by George, C. J., Baxter, Kennard, Chin, and Moreno, J.. Concurring Opinion By George, C. J. Concurring Opinion By Werdegar, J. |
| Jun 9 2003 | Association of attorneys filed for: Deborah Giles, Esq. [ Respondent Scripps Health] |
| Jul 9 2003 | Remittitur issued (civil case) |
| Briefs | |
| Oct 30 2001 | Opening brief on the merits filed |
| Dec 28 2001 | Answer brief on the merits filed |
| Feb 1 2002 | Reply brief filed (case fully briefed) |
| Mar 6 2002 | Amicus Curiae Brief filed by: |
| Mar 6 2002 | Amicus Curiae Brief filed by: |
| Mar 7 2002 | Amicus Curiae Brief filed by: |
| Mar 7 2002 | Amicus Curiae Brief filed by: |
| Mar 20 2002 | Amicus Curiae Brief filed by: |
| Mar 27 2002 | Response to amicus curiae brief filed |
| Mar 28 2002 | Response to amicus curiae brief filed |
| Apr 24 2002 | Response to amicus curiae brief filed |
