Opinion
NOT TO BE PUBLISHED
San Francisco County Super. Ct. No. CGC-07-461464
Sepulveda, J.
INTRODUCTION
Richard B. Fox, M.D., sued a health care service plan for aiding and abetting conversion perpetrated by several of the plan’s members. The health plan, California Physicians’ Service, doing business as Blue Shield of California (Blue Shield), provides health benefits to its members through a network of participating health care providers. Blue Shield pays its participating health care providers directly. However, Blue Shield indirectly compensates out-of-network providers, by sending the payments to its plan members, who are then supposed to forward the money to the providers. To circumvent this indirect payment, out-of-network providers often attempt to obtain an assignment of the plan members’ rights to receive payment. Blue Shield, however, does not honor any such assignment and refuses to mail payment to these out-of network providers.
Dr. Fox, an out-of-network provider, alleges that plan members routinely fail to remit the checks and convert the insurance money by keeping it for themselves. He asserts Blue Shield aids and abets in this conversion by its practice of sending payment directly to its members. Dr. Fox insists that Blue Shield is violating the Unfair Competition Law (Bus. & Prof. Code, § 17200) because the indirect payment system is designed to compel nonparticipating providers to join Blue Shield’s network. The trial court sustained Blue Shield’s demurrer to the second amended complaint without leave to amend, and the case is now before us on Dr. Fox’s appeal from the judgment of dismissal thereafter entered. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Because we are reviewing the propriety of an order sustaining a demurrer, we assume the factual allegations of the second amended complaint are true. (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 38.)
A. Dr. Fox’s Treatment of Blue Shield Members
Dr. Fox, a board-certified physician, specializes in critical care medicine. Blue Shield is a licensed health care service plan under the Knox-Keene Health Care Service Plan Act (Health & Saf. Code, § 1340, et seq.). Blue Shield maintains a network of participating health care providers, also known as preferred providers, who provide services to Blue Shield members at discounted rates. Blue Shield sends payment directly to participating doctors, but remunerates out-of-network doctors by sending the payments to its members. The industry practice is to disburse payment to the nonparticipating provider under an assignment of benefits. Blue Shield, however, refuses to honor assignments of benefits to out-of-network doctors. Dr. Fox avers that Blue Shield’s anti-assignment policy is designed to force nonparticipating doctors to join its network.
Dr. Fox is not a participating provider in Blue Shield’s network, but as a doctor specializing in emergency medicine, he often provides medical care and services to Blue Shield members. Due to his out-of-network status, Dr. Fox must seek reimbursement from Blue Shield members. In over 15 years of practice, Dr. Fox has encountered only a few instances in which a Blue Shield member has voluntarily forwarded the benefit check. Rather, his attempts at being compensated have been largely unsuccessful, unless legal action has been taken or threatened.
For example, Dr. Fox provided emergency treatment to Blue Shield members Devin Good and Sheila Sabatino. Both Good and Sabatino received insurance benefits directly from Blue Shield. Both plan members kept the insurance benefits and paid nothing to Dr. Fox until they were sued in the instant action.
Additionally, Dr. Fox treated Reynaldo Castillo for a life-threatening emergency following surgery by another doctor. While Castillo was still in the hospital, Dr. Fox explained to him that he was an out-of-network doctor called in due to Castillo’s life threatening emergency. Dr. Fox further explained to Castillo that Blue Shield would send the insurance payment directly to Castillo and that Castillo would be required to forward the check to Dr. Fox. Blue Shield sent the benefits check to Castillo. However, the check was returned to Blue Shield because Castillo had moved without leaving a forwarding address; Blue Shield did not forward the returned check to Dr. Fox.
Dr. Fox also treated Blue Shield member Christopher Langdon at a community hospital. Langdon later died at home. Blue Shield sent the payment directly to Langdon and the check was deposited into Langdon’s account either by Langdon prior to his death or by his estate.
B. Proceedings in the Trial Court
Dr. Fox commenced the instant action in March 2007, alleging conversion, aiding and abetting conversion, and unfair business practices against Blue Shield and plan members Good, Sabatino, and Castillo. Sabatino and Good eventually paid the respective amounts demanded, and both were dismissed from the action.
1. First Amended Complaint
Following removal to federal court and subsequent remand, the parties stipulated to the filing of a first amended complaint in August 2007. Blue Shield demurred to the first amended complaint, arguing, among other things, that Dr. Fox could not prevail on his aiding and abetting conversion claim because he had not alleged actual knowledge and substantial assistance on the part of Blue Shield vis-à-vis the conversions perpetrated by its members; Blue Shield also argued that Dr. Fox could not establish a violation of the Unfair Competition Law (UCL).
The trial court sustained Blue Shield’s demurrer with leave to amend, explaining that Dr. Fox was required to “allege facts that [Blue Shield] had actual knowledge” with respect to his aiding and abetting conversion cause of action. The trial court further explained that if Dr. Fox were able to state a claim for conversion, he “may be able to state a claim for unfair business practices.”
2. Second Amended Complaint
In January 2008, Dr. Fox filed a second amended complaint, alleging four causes of action against Blue Shield, comprised of three causes of action for aiding and abetting conversion related to plan members Good, Sabatino, and Langdon, and one cause of action for unfair business practices in violation of Business and Professions Code section 17200.
Blue Shield filed a demurrer to the second amended complaint, arguing that its anti-assignment clause was valid and provided no basis for liability. Blue Shield also argued that Dr. Fox failed to adequately state a claim for aiding and abetting conversion, asserting that Dr. Fox had not and could not plead that Blue Shield had knowledge that its plan members were engaged in conversion or that Blue Shield provided “ ‘substantial assistance’ ” in furtherance of its members’ purported conversions.
The trial court sustained the demurrer to the second amended complaint (without leave to amend) and the instant appeal followed.
DISCUSSION
A. Standard of Review
“The demurrer tests the legal sufficiency of the complaint. We engage in de novo review of a judgment of dismissal following the sustaining of a demurrer without leave to amend. [Citation.] Further, ‘ “[w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.” ’ [Citations.]” (Hirsch v. Bank of America (2003) 107 Cal.App.4th 708, 716.)
B. Aiding and Abetting Conversion
1. Background
Both parties argue at length about the merits and propriety of Blue Shield’s anti-assignment policy. However, the legality of anti-assignment clauses is neither at issue nor seriously in question. Although there is no California authority discussing this issue, the validity of anti-assignment clauses in group health care contracts has been consistently upheld in courts of other states and in federal courts. (See Abraham K. Kohl, D.C. v. Blue Cross & Blue Shield of Florida, Inc. (Fla.Dist.Ct.App. 2007) 955 So.2d 1140, 1144-1145 [anti-assignment clause consistent with public policy]; Somerset Orthopedic Associates, P.A. v. Horizon Blue Cross & Blue Shield of New Jersey (N.J. 2001) 785 A.2d 457, 460-461 (Somerset) [anti-assignment clauses widely upheld nationwide]; St. Francis Regional Medical Center v. Blue Cross Blue Shield of Kansas, (D.Kan. 1992) 810 F.Supp. 1209, 1217-1219 [nonassignment clause did not violate public policy]; Parrish v. Rocky Mountain Hospital & Medical Services. Co., Inc. (Colo.Ct.App.1988) 754 P.2d 1180, 1182 [nonassignment clauses are valuable tools in keeping health care costs down]; Kent General Hospital, Inc. v. Blue Cross & Blue Shield of Delaware, Inc. (Del.1982) 442 A.2d 1368, 1371 [nonassignment clause valid and enforceable]; Augusta Medical Complex, Inc. v. Blue Cross of Kansas, Inc. (Kan.1981) 634 P.2d 1123,1127 [nonassignment clause essential to cap skyrocketing health care costs]; Obstetricians-Gynecologists, P.C. v. Blue Cross & Blue Shield of Nebraska (Neb. 1985) 361 N.W.2d 550, 556 [nonassignment clause valuable tool]; see also SmileCare Dental Group v. Delta Dental Plan of Cal., Inc. (9th Cir. 1996) 88 F.3d 780, 784-785 [no antitrust violation for refusing to recognize copayments]; Davidowitz v. Delta Dental Plan of Cal., Inc., (9th Cir.1991) 946 F.2d 1476, 1478-1481 [ERISA welfare payments not assignable]; Washington Hospital Center Corp. v. Group Hospitalization & Medical Services, Inc. (D.D.C.1991) 758 F.Supp. 750, 753-755 [same]; but see American Medical International, Inc. v. Arkansas Blue Cross & Blue Shield (Ark. 1989) 773 S.W.2d 831, 833-834 [anti-assignment clause in group health care policy invalid]; Toranto v. Blue Cross &Blue Shield of Texas, Inc. (Tex. 1999) 993 S.W.2d 648, 649-650 [anti-assignment clause prohibited by Texas insurance code].)
Notwithstanding Dr. Fox’s lengthy forays into the nefarious motives behind Blue Shield’s anti-assignment policy, the key issue is whether Blue Shield’s actions constitute aiding and abetting the conversion allegedly committed by its members.
2. Applicable Law
“California has adopted the common law rule for subjecting a defendant to liability for aiding and abetting a tort.” (Casey v. U.S. Nat. Bank Assn. (2005) 127 Cal.App.4th 1138, 1144 (Casey). A civil cause of action for aiding and abetting “necessarily requires a defendant to reach a conscious decision to participate in tortious activity for the purpose of assisting another in performing a wrongful act. A plaintiff’s object in asserting such a theory is to hold those who aid and abet in the wrongful act responsible as joint tortfeasors for all damages ensuing from the wrong. [Citation.]” (Howard v. Superior Court (1992) 2 Cal.App.4th 745, 749.) Liability for aiding and abetting an intentional tort arises if the defendant substantially assists or encourages another party to act, with the knowledge that the other party’s conduct constitutes a breach of duty. (Casey, supra, 127 Cal.App.4th at p. 1144.)
What constitutes substantial assistance turns on the extent of the defendant’s knowledge of the underlying tort. Casey explains that “even ‘ordinary business transactions’ a bank performs for a customer can satisfy the substantial assistance element of an aiding and abetting claim if the bank actually knew those transactions were assisting the customer in committing a specific tort. Knowledge is the crucial element.” (Casey, supra, 127 Cal.App.4th at p. 1145.) In other words, “a defendant can only aid and abet another’s tort if the defendant knows what ‘that tort’ is.” (Id. at p. 1146.)
Although Dr. Fox acknowledges that he must plead actual knowledge and substantial assistance to state a cause of action for aiding and abetting conversion, he asserts that the ultimate facts he alleged are sufficient to survive a demurrer. As we shall explain, the sufficiency of the pleading turns on whether the facts alleged demonstrate actual knowledge of the specific underlying wrong.
For example, in Casey, a bankruptcy trustee sued several banks for aiding and abetting a fraudulent scheme to loot the debtor corporation. (Casey, supra, 127 Cal.App.4th at p. 1141.) In reversing, the court found that the trustee’s allegations fell “far short” of the requirements for pleading a cause of action for aiding and abetting breach of fiduciary duty. (Id. at p. 1148.) Although the complaint provided “ample details of the banks’ improper conduct in their business dealings with [the perpetrator of the fraud], the complaint fail[ed] to establish that the banks had actual knowledge of the primary violation in which they purportedly participated.” (Ibid., italics omitted.) It was insufficient for the trustee to allege that “the banks knew something fishy was going on....” (Id. at p. 1149, italics omitted.)
Similarly, in Schulz v. Neovi Data Corp (2007) 152 Cal.App.4th 86, 88-90 (Schulz), an Internet consumer failed to allege facts, as to two payment processing companies, sufficient to state a cause of action for aiding and abetting an illegal on-line lottery. There, the plaintiff pleaded only that “PayPal knew the site was an illegal lottery but agreed [the site] could use its payment system with the knowing intent to aid and abet [the site’s] operation because it could be profitable for PayPal.” (Id. at p. 97.) As to the other payment processing company, the complaint alleged only that it “ ‘knew of [the site’s] unlawful operations’ ‘but knowingly and intentionally aided and abetted the operation by setting up a system’ for consumers to use its electronic check system, and, as a result, received a fee.” (Ibid.) Based on these pleadings, the appellate court held that the plaintiff had failed to allege the requisite knowledge of the alleged illegal lottery or facts showing substantial assistance or encouragement. (Ibid.) In so holding, the court explained that the allegations were nothing more than “mere conclusions” that did not save the aiding and abetting causes of action. (Ibid.)
3. Analysis
With these principles in mind, we consider the adequacy of Dr. Fox’s second amended complaint. Although Dr. Fox alleges that Blue Shield had “actual knowledge that it knowingly facilitated” the conversions by its members, he does not allege facts that Blue Shield actually knew Good, Sabatino, and Langdon would keep the money for themselves. Rather, Dr. Fox alleges that Blue Shield “hoped, expected, and knew of the likelihood” that its members would convert the insurance payments for their own use. However, mere suspicion of wrongdoing does not constitute actual knowledge. (See Casey, supra, 127 Cal.App.4th at pp. 1151-1152.)
We are also not persuaded by Dr. Fox’s attempt to distinguish Casey on the ground that he, unlike the plaintiff there, has alleged a specific wrongdoing, i.e., conversion. Although it is true that Dr. Fox has alleged a specific tort, he has failed to allege sufficient facts that Blue Shield aided and abetted in the conversion. In Casey, the court explained that the defendant banks’ knowledge of suspicious account activities, even money laundering, did not give rise to tort liability. (Casey, supra, 127 Cal.App.4th at p. 1151.) Casey makes clear that if a plaintiff can allege that the defendant banks knew that its account holders (fiduciaries of a corporation) were stealing corporate funds and knowingly assisted them in laundering this stolen money, such allegations would suffice to state a claim for aiding and abetting theft or breach of fiduciary duty. (Id. at pp. 1151-1152.) Here, Dr. Fox has failed to allege that Blue Shield knew that its members would convert the insurance payment and that Blue Shield knowingly assisted them in converting this money.
Equally without merit is Dr. Fox’s reliance on various federal cases, which purport to support his contention that Blue Shield’s “atypical business procedures” provide an inference of actual knowledge of its aiding and abetting in its members’ conversions. These cases do nothing to further Dr. Fox’s cause. Rather, these cases illustrate that “atypical business practices” are synonymous with transactions or actions that lack business justification, thereby creating an inference of the knowledge necessary for aiding and abetting liability. (See Neilson v. Union Bank of California (C.D.Cal. 2003) 290 F.Supp.2d 1101, 1121 [atypical banking procedures sufficient to infer knowledge of Ponzi scheme]; Camp v. Dema (8th Cir. 1991) 948 F.2d 455, 459 [atypical business transactions may establish aiding and abetting liability with minimal showing of knowledge]; Woodward v. Metro Bank of Dallas (5th Cir. 1975) 522 F.2d 84, 97 [same].) Here, the challenged business practice is Blue Shield’s anti-assignment policy. Even assuming that Blue Shield is alone in the California health insurance industry in refusing to honor assignments of benefits, the anti-assignment clause, nevertheless, serves important public policy objectives within the realm of managed health care.
The anti-assignment clause “has been described variously as ‘the keystone in the system,’ [citation], and ‘vital to the functioning of [the health service corporation].’ [Citation.]” (Somerset, supra, 785 A.2d at p. 464.) Moreover, anti-assignment clauses have been “deemed to advance the overarching public interest in limiting health care costs for, if the patient could assign his or her rights to payment to outside medical providers, it would undercut the pre-arranged costs with in-network providers that are relied upon by non-profit health services corporations in deciding the premium amount.” (Id. at p. 461.) “The benefit to this system is that the insurer is able to impose cost restraints on the participating health care providers who, in return, receive quick and direct payment from the insurer. ‘If a patient could obtain care from a nonparticipating [provider] and assign it the patient’s right to be reimbursed under a group policy, in the teeth of an anti-assignment clause, this direct payment inducement to become a participating [provider] would be weakened or eliminated.’ [Citation.]” (Abraham K. Kohl, D.C. v. Blue Cross and Blue Shield of Florida, Inc., supra, 955 So.2d at p. 1145.) Accordingly, we reject Dr. Fox’s attempt to analogize Blue Shield’s anti-assignment policy to an atypical practice lacking a valid business justification.
We also conclude that Dr. Fox failed to allege sufficient facts regarding substantial assistance on the part of Blue Shield. His allegations on this element are conclusory and fail to describe in meaningful detail how Blue Shield’s actions provided substantial assistance to its members in executing their respective conversions. Even if we were to conclude that Dr. Fox properly alleged that Blue Shield had knowledge of its members’ inevitable conversion, which we do not, “[m]ere knowledge that a tort is being committed and the failure to prevent it does not constitute aiding and abetting.” (Fiol v. Doellstedt (1996) 50 Cal.App.4th 1318, 1326.)
Finally, we reject Dr. Fox’s contention that the allegations of Blue Shield’s purported financial gain adequately demonstrates knowledge and substantial assistance on the part of Blue Shield. As Dr. Fox concedes, financial gain is not an element of aiding and abetting. (See Casey, supra, 127 Cal.App.4th at pp.1144-1145; see also Neilson v. Union Bank of California, supra, 290 F.Supp.2d at p. 1129.) Accordingly, at the pleading stage, evidence regarding Blue Shield’s alleged profits from its members’ conversions is irrelevant. The authority cited by Dr. Fox fails to convince us otherwise. (See e.g., Heckmann v. Ahmanson (1985) 168 Cal.App.3d 119, 123-124, 127-128 [injunction]; Gould v. American-Hawaiian Steamship Co. (3rd Cir. 1976) 535 F.2d 761, 767-769 [summary judgment]; United States v. Pino-Perez (7th Cir. 1989) 870 F.2d 1230, 1231-1233 [criminal appeal following conviction]; United States v. Blankenship (7th Cir. 1992) 970 F.2d 283, 286 [same].)
C. Unfair Competition
Business and Professions Code section 17200 prohibits unlawful competition, including an “unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising[.]” (§ 17200.) The UCL is broad in scope and embraces “ ‘ “ ‘anything that can properly be called a business practice and that at the same time is forbidden by law.’ ” ’ [Citations.]” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech).) Section 17200 borrows violations of federal, state, or local laws by making them independently actionable as unfair competitive practices. (State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1102-1103.)
All further undesignated statutory references are to the Business and Professions Code.
Dr. Fox’s second amended complaint alleged a violation of section 17200, seeking redress for “Blue Shield’s practice of sending insurance payments directly to patients,” which Dr. Fox claims violates section 17200 because, by this practice, Blue Shield “intends to operate by tempting and inducing consumers to commit conversion of those payments for their own use in violation of [Civil Code section] 3379.” Of course, these are nothing more than complaints about Blue Shield’s purported aiding and abetting of the conversion allegedly committed by its members, which we have already concluded fail as a matter of law to state an actionable claim.
Although the UCL’s “scope is sweeping, it is not unlimited.” (Cel-Tech, supra, 20 Cal.4th at p. 182.) Moreover, courts “may not simply impose their own notions of the day” or “apply purely subjective notions of fairness” in order to determine whether the challenged conduct is actionable under the UCL. (Id. at pp. 182, 184.) We conclude that Dr. Fox’s generic challenge to Blue Shield’s anti-assignment policy fails to adequately state a cause of action in violation of section 17200.
Although not raised below or on appeal, we note that conduct in violation of the Knox-Keene Act may provide the basis for a cause of action under section 17200. (See Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 215-218; Coast Plaza Doctors Hospital v. UHP Healthcare (2002) 105 Cal.App.4th 693, 706; see also Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 504.)
DISPOSITION
The judgment is affirmed. Blue Shield is entitled to its costs on appeal.
We concur: Ruvolo, P. J., Rivera, J.