Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Fresno County Superior Court. No. 06CECG02574. Donald R. Franson, Jr., Judge.
Stephenson, Acquisto & Colman, Joy Y. Stephenson, Barry Sullivan, Gary LaHendro, Leo Luevanos and Celim E. Huezo for Plaintiff and Appellant.
Davis, Cowell & Bowe, Elizabeth A. Lawrence and Sarah T. Grossman-Swenson for Defendants and Respondents.
Levy, J.
Appellant, Fresno Community Hospital and Medical Center (Hospital), challenges the dismissal of its cause of action against respondent, UFCW Northern California Health and Welfare Trust Fund (UFCW), for breach of a contract that Hospital entered into with Blue Cross of California (Blue Cross). UFCW is a self-funded health plan providing healthcare benefits to its members. According to Hospital, UFCW is liable for the cost of the medical services Hospital rendered to one of UFCW’s members in the amount of approximately $1.3 million.
In sustaining UFCW’s demurrer to this cause of action without leave to amend, the trial court noted that no contract was alleged between Hospital and UFCW. Rather, the contract was between Hospital and Blue Cross, a nonparty to the action. The trial court ruled that UFCW could not be held liable under a contract to which it was not a party and therefore, Hospital could not state a cause of action for breach of contract against UFCW.
An appellate court reviews a ruling on a demurrer de novo, exercising independent judgment on whether the complaint states a cause of action as a matter of law. (Balikov v. Southern Cal. Gas. Co. (2001) 94 Cal.App.4th 816, 819.) Accordingly, a complaint will be found sufficient if it alleges facts that state a cause of action under any possible legal theory. (Sunset Drive Corp. v. City of Redlands (1999) 73 Cal.App.4th 215, 219.) Nevertheless, because it is not a reviewing court’s role to construct theories or arguments that would undermine the judgment, the appellate court considers only those theories advanced in the appellant’s briefs. (Ibid.)
On appeal, Hospital relies on one theory of liability. Hospital contends that when UFCW entered into its own contract with Blue Cross, UFCW ratified the contract between Hospital and Blue Cross and therefore is liable to Hospital under that contract. However, as discussed below, Hospital’s ratification theory has no support in either fact or law. Consequently, this court cannot provide Hospital relief under that or any other theory. Accordingly, the judgment will be affirmed.
BACKGROUND
Hospital entered into a participating hospital agreement with Blue Cross. Hospital agreed to provide services to individuals covered by Blue Cross health plans and Blue Cross agreed to compensate Hospital as specified in the contract (Hospital-Blue Cross Contract). The parties anticipated that Blue Cross would enter into further contracts with third parties, referred to as “other payors,” whose members would thereby be covered pursuant to the Blue Cross provider contracts.
Blue Cross and UFCW entered into such a contract in which Blue Cross agreed to administer UFCW’s health and welfare benefits program (Blue Cross-UFCW Contract). The agreement also provided that UFCW would participate in the Blue Cross provider network known as the Prudent Buyer Plan network. In conjunction with this participation, UFCW agreed that it “shall comply with all existing conditions and terms of [Blue Cross’s] Prudent Buyer Plan Provider agreements.”
Hospital provided services to a patient covered by the UFCW health benefits program for approximately two years beginning in June 2002. Hospital submitted an approximately $1.3 million claim for the unpaid services to Blue Cross for payment by UFCW. When UFCW failed to pay Hospital, Hospital filed the underlying complaint against UFCW.
At issue in this appeal, is the first cause of action for breach of written contract contained in the second amended complaint. In that cause of action, Hospital alleges that Blue Cross “sold, leased, transferred and/or conveyed its rights to discounts for medical care rendered and obligations to pay pursuant to the Prudent Buyer Contract to UFCW.” Thus, UFCW was an “other payor” and acquired the same rights and obligations under the Prudent Buyer Contract as Blue Cross originally had. Hospital then alleges that, when it provided medically necessary services to the UFCW member, UFCW “(as transferee of the Blue Cross’ rights and obligations)” agreed to pay Hospital pursuant to the negotiated rates under the Prudent Buyer Contract. However, Hospital alleges, UFCW breached the Prudent Buyer Contract by failing to pay the balance due to Hospital on the claim for the UFCW member “despite the fact that it accepted the sale, lease, transfer and/or conveyance to pay, as well as availed itself of the benefits under the Prudent Buyer Contract (i.e., paying the hospital billed charges at a negotiated discounted rate).”
The trial court sustained UFCW’s demurrer to this breach of contract cause of action without leave to amend. The court observed that “[t]here still is no contract alleged between [Hospital] and [UFCW]; instead, the contract was between [Hospital] and non-party, Blue Cross.” The court concluded that UFCW cannot “be held liable under a contract to which it was not a party.” The court further ruled that “[a]s in the first amended complaint, assignment is still inadequately alleged.”
Thereafter, Hospital moved for leave to file a third amended complaint. In the proposed third amended complaint, Hospital added further details of the Blue Cross-UFCW Contract. Hospital quoted the contract provision where UFCW agreed to comply with the existing terms and conditions of the Prudent Buyer Plan provider agreements and alleged that, accordingly, UFCW “was an assignee of Blue Cross’ rights under the Prudent Buyer Contract as amended and is obligated to comply with the terms of the Prudent Buyer Contract.” Hospital further added the allegation that UFCW “ratified” the Hospital-Blue Cross contract.
The trial court denied Hospital’s motion for leave to amend. The court noted there was no evidence that UFCW “ratified” the contract or that Blue Cross “assigned its obligations” under the Hospital-Blue Cross contract to UFCW. Further, previous demurrers were sustained on this ground, as well as on the ground that no third party beneficiary status in favor of Hospital was alleged. The court refused to grant Hospital leave to amend a claim that had already been sustained against it on demurrer.
DISCUSSION
In general, only the parties to a contract are able to either sue or be sued on that contract. (Super 7 Motel Associates v. Wang (1993) 16 Cal.App.4th 541, 545.) However, when a person voluntarily adopts a contract that was purportedly entered on his or her behalf by an agent, i.e., ratifies the contract, that person may incur liability under that contract despite not being a signatory to it. (Rakestraw v. Rodrigues (1972) 8 Cal.3d 67, 73.) Further, a third party to a contract may enforce a contract when it appears from the contract’s terms that the contracting parties intended to benefit that third party. (Ochs v. PacifiCare of California (2004) 115 Cal.App.4th 782, 795.)
On appeal, Hospital relies solely on a ratification theory to support its claim for recovery from UFCW. According to Hospital, UFCW adopted and ratified the Hospital-Blue Cross Contract when it entered into the Blue Cross-UFCW Contract and therefore Hospital can recover from UFCW under the Hospital-Blue Cross Contract.
Hospital has never alleged third party beneficiary status. Without deciding this issue, we observe that, on this record, it appears that Hospital may have been able to state a cause of action for breach of the Blue Cross-UFCW Contract as a third party beneficiary of that contract. UFCW’s promise to comply with all existing conditions and terms of Blue Cross’s Prudent Buyer Plan Provider agreements could be interpreted as a covenant intended by the contracting parties to benefit Hospital. (Civ. Code, § 1559; California Emergency Physicians Medical Group v. PacifiCare of California (2003) 111 Cal.App.4th 1127, 1137-1138.) Nevertheless, we cannot consider this theory on appeal, as it was not advanced in appellant’s briefs. (Sunset Drive Corp. v. City of Redlands, supra, 73 Cal.App.4th at p. 219.)
In the context of a contract, the concept of “adopted and ratified” is applicable only to contracts made by a party acting or assuming to act for another. “The latter may then adopt or ratify the act of the former, however unauthorized.” (Ellison v. Jackson Water Company (1859) 12 Cal. 542, 551.) However, ratification requires that there be some relation, actual or assumed, of principal and agent. (Ibid.) Thus, here, for UFCW to be liable to Hospital under the Hospital-Blue Cross Contract, i.e., to have “ratified” that contract, Blue Cross must have been acting as UFCW’s agent.
“An agent is one who represents another, called the principal, in dealings with third persons.” (Civ. Code, § 2295.) An agency typically arises by express agreement. (van’t Rood v. County of Santa Clara (2003) 113 Cal.App.4th 549, 571 (van’t Rood).) However, an agency may also arise by implication from the conduct of the parties. (Flores v. Evergreen at San Diego, LLC (2007) 148 Cal.App.4th 581, 587.) In any event, the formation of an agency relationship is a bilateral matter, i.e., it requires words or conduct by both principal and agent. (van’t Rood, supra, 113 Cal.App.4th at p. 571.) “‘“The principal must in some manner indicate that the agent is to act for him, and the agent must act or agree to act on his behalf and subject to his control.”’” (Ibid.)
The right of control is an essential characteristic. In its absence, there is no agency. (van’t Rood, supra, 113 Cal.App.4th at p. 572.) Accordingly, the existence of a preexisting relationship is not sufficient to make one party the agent for another. (Ibid.) Rather, there must be evidence that the person for whom the work was performed had the right to control the activities of the alleged agent. (Ibid.) The mere fact that one person’s act benefits another does not infer such control. (Ibid.)
In arguing that UFCW ratified the Hospital-Blue Cross Contract when it executed the Blue Cross-UFCW Contract, Hospital assumes, without explanation, that Blue Cross was acting as UFCW’s agent when it executed the Hospital-Blue Cross Contract. However, there is no indication in the record that such an agency relationship existed. Hospital neither alleged, nor is there any evidence, that UFCW had the right to control the activities of Blue Cross. In fact, the Blue Cross-UFCW Contract specifically states an agency relationship did not exist. That contract provides “Nothing in this Agreement shall create, or be construed to create, the relationship of employer and employee between [UFCW] and [Blue Cross], or as principal and agent ….” Thus, Hospital cannot state a cause of action for breach of the Hospital-Blue Cross contract against UFCW based on a ratification theory.
In light of this conclusion, it must also be concluded that the trial court did not abuse its discretion in denying Hospital leave to amend its complaint. Hospital’s proposed changes do not cure the complaint’s defects.
DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to respondent.
WE CONCUR: Vartabedian, Acting P.J., Kane, J.