Opinion
B229976
08-02-2011
LATARA ENTERPRISES, INC., Plaintiff and Appellant, v. HEALTH NET, INC., et al., Defendants and Respondents.
Hooper, Lundy & Bookman and Patric Hooper for Plaintiff and Appellant. Crowell & Moring, Michael D. Newman, Nathanial J. Wood, Kathleen Balderrama and Ethan P. Schulman for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC 450537)
APPEAL from an order of the Superior Court for the County of Los Angeles. Robert H. O'Brien, Judge. Affirmed.
Hooper, Lundy & Bookman and Patric Hooper for Plaintiff and Appellant.
Crowell & Moring, Michael D. Newman, Nathanial J. Wood, Kathleen Balderrama and Ethan P. Schulman for Defendants and Respondents.
SUMMARY
Until January 2011, plaintiff Latara Enterprises, Inc. (doing business as Foundation Laboratory), provided clinical laboratory services for the inmates of 20 of California's 33 state prisons. In late 2010, a subsidiary of defendant Health Net, Inc., the designated health care network provider for the Department of Corrections and Rehabilitation (the Department), awarded a contract to plaintiff's competitor to provide laboratory services for the inmates of all 33 state prisons. Plaintiff sued defendant, seeking damages and temporary injunctive relief to "prohibit[] Health Net from terminating [plaintiff's] status as a provider of clinical laboratory services" pending a determination of the merits of its complaint. The trial court denied plaintiff's application for a preliminary injunction and plaintiff appealed. We affirm the trial court's order.
FACTS
In 2005, the federal district court established a receivership to take control of the delivery of medical services to prisoners confined by the Department. (See Plata v. Schwarzenegger (N.D.Cal., Oct. 3, 2005, No. C01-1351 TEH) 2005 U.S.Dist. Lexis 43796.) The receiver is responsible for developing and implementing a new system that would provide constitutionally adequate medical care to inmates, and for overseeing and directing all contractual, legal, and other operational functions of the Department's delivery of medical services. The receiver was authorized to and did obtain waivers of various state contracting laws and regulations applicable to various categories of procurements, including the procurement of clinical laboratory services.
The receiver's plan included procuring the services of a "health care network provider" that would provide the Department with a statewide network of community-based medical service providers. Defendant was awarded this contract and is responsible for furnishing the statewide network of providers "through contracting, monitoring, and management." (Penal Code section 5023.5 authorizes the Department to contract with health care network providers such as defendant.) Defendant's contract with the Department required 66 percent of the network to be implemented and available for use by January 1, 2011, and 100 percent by June 29, 2011.
In September 2010, defendant met with state personnel to discuss laboratory and radiology services. The state recommended that defendant contract with a single laboratory provider to serve all 33 state prisons, and defendant agreed with that recommendation. Defendant solicited bids from three potential contractors, two of whom became serious candidates, plaintiff and the ultimate winner, Quest Diagnostics. Plaintiff was then providing laboratory services for 20 of the state's 33 prisons. Both bidders executed nondisclosure agreements with defendant, generally prohibiting defendant from disclosing either bidder's confidential and proprietary information, "such as the content of their bids, without the bidder's consent."
In mid-November 2010, defendant selected Quest Diagnostics for the laboratory services contract, a three-year contract to begin on January 1, 2011.
On December 6, 2010, plaintiff sued defendant, alleging that defendant violated the common law fair procedure doctrine and the Public Contract Code. Plaintiff alleged defendant refused to inform plaintiff of the reasons "for terminating its preexisting relationship"; failed to give plaintiff "any meaningful opportunity to be heard to challenge or even address such reasons"; was not authorized under Penal Code section 5023.5 to enter into contracts for laboratory services; and failed to comply with the requirements for government contracting under the Public Contract Code. Plaintiff sought damages and temporary injunctive relief "prohibiting Health Net from terminating [plaintiff's] status as a provider of clinical laboratory services to state prisons" pending a determination of the merits of its complaint.
The trial court denied plaintiff's request for a temporary restraining order, but issued an order to show cause why a preliminary injunction should not issue.
Plaintiff's evidence in support of its request for a preliminary injunction showed that plaintiff had been providing clinical laboratory services to state prison inmates since 1996. By 2003, plaintiff was serving 12 prisons; the number increased to 14 in 2005 and 22 in 2006; in 2010, plaintiff was providing laboratory services for 20 of the state's 33 prisons. Until June 30, 2008, plaintiff provided its services under contracts awarded through a public bidding process. Since July 1, 2008, plaintiff has been providing its services without any written contract. Sixty percent of plaintiff's laboratory services are furnished to prison inmates, generating more than half of the company's revenues. Plaintiff has contracts with hospitals and courier companies on which it "will likely have to default . . . and potentially face substantial penalties," and will "likely face increased prices for buying less volume." It will be forced to reduce "around 30% of its technical staff," and its "goodwill . . . is rapidly declining as rumors are spreading concerning the termination of [plaintiff's] relationship with the state prisons."
Plaintiff stated that defendant had given plaintiff no reason for refusing to continue to contract with plaintiff and has refused to provide plaintiff with any process for challenging the decision-making or learning of the reasons for the decision. Nor would defendant disclose the rate to be paid to the winning bidder. Further, the state's cost data for 2009 showed that the cost of testing performed by plaintiff averaged $9.01 per test, while the cost of testing by Quest Diagnostics (which provided testing for 11 of the state's prisons that year) averaged $12.71 per test.
Defendant's opposition evidence included copies of defendant's contract with the Department and the federal court orders waiving state contracting statutes and regulations. A declaration from the Department confirmed that plaintiff's last contract with the Department had expired two and a half years earlier, and that services were being provided without a formal contract or work order. The Department's declaration also stated that failure to secure the services of a single statewide laboratory would create risks for patient-inmate service delivery, because current providers are not under contract; delay in securing statewide laboratory services increases the risk of harm to patient-inmates requiring the services of critical specialties; implementing short-term solutions pending the outcome of this litigation would delay needed service delivery; delay has the potential to increase costs; and failure to have laboratory services in place will have an adverse impact on the implementation of the receiver's plan to restructure the prison health care system.
Defendant also presented a declaration stating that plaintiff's bid "was not as strong [as its competitor's] with respect to, e.g., its ability to serve all 33 of the required facilities, its ability to meet the requirements for expedited turn-around time on the most urgent (so-called 'STAT') required lab tests, and its ability to comply fully with those requirements that had to be operational on the start-date of January 1, 2011." (Italics omitted.) A declaration from defendant's counsel stated that he had explained to plaintiff's counsel, before the suit was filed, that defendant had been particularly concerned about the risk in using plaintiff as a vendor because plaintiff possessed only one laboratory, located in Southern California, "and given the remote location of some rural prisons in extreme northern California, the risk was too high that [plaintiff] could not meet [four- and six- hour] turn-around times, compared to its competitor's capabilities."
The trial court denied the preliminary injunction. Its minute order states only that the court concluded "that the Plaintiff is not likely to prevail on its claim."
Plaintiff filed a timely appeal.
DISCUSSION
1. The Standard of Review
In deciding whether to issue a preliminary injunction, the trial court considers two factors: "the likelihood that plaintiffs will prevail on the merits at trial, and the comparative harm to be suffered by plaintiffs if the injunction does not issue against the harm to be suffered by defendants . . . if it does." (King v. Meese (1987) 43 Cal.3d 1217, 1226.) The decision whether to grant a preliminary injunction generally rests in the trial court's discretion, which is abused if the court "'exceeds the bounds of reason or contravenes uncontradicted evidence.'" (14859 Moorpark Homeowner's Assn. v. VRT Corp. (1998) 63 Cal.App.4th 1396, 1402 (14859 Moorpark).)
"When a trial court denies an application for a preliminary injunction, it implicitly determines that the plaintiffs have failed to satisfy either or both" factors, and on appeal "the question becomes whether the trial court abused its discretion in ruling on both factors"; even if the appellate court finds an abuse of discretion as to one of the factors, "it nevertheless may affirm the trial court's order if it finds no abuse of discretion as to the other." (Cohen v. Board of Supervisors (1985) 40 Cal.3d 277, 286-287.) When the trial court fails to make express findings, "we presume that the trial court made appropriate factual findings . . . and review the record for substantial evidence to support the rulings [citation]." (14859 Moorpark, supra, 63 Cal.App.4th at pp. 1402-1403, citation omitted.) If the determination of likelihood of success rests on an issue of law not presenting factual issues, we review the determination de novo. (Id. at p. 1403.) The burden is on the party challenging the trial court's ruling "'to make a clear showing of an abuse of discretion.'" (Shoemaker v. County of Los Angeles (1995) 37 Cal.App.4th 618, 624.)
2. The Trial Court Did Not Abuse Its Discretion.
Plaintiff first contends it was likely to prevail at trial because defendant had no statutory authority to enter into contracts for laboratory services under Penal Code section 5023.5 (section 5023.5). Plaintiff failed to establish this point.
Section 5023.5 authorizes the Department, "[n]otwithstanding any other law," to "contract with providers of health care services and health care network providers, including, but not limited to, health plans, preferred provider organizations, and other health care network managers." (§ 5023.5, subd. (a).) The Department entered into such a contract with defendant, and that contract made defendant responsible for providing a statewide network of community-based medical service providers, including laboratory services as well as a number of other medical services. Plaintiff asserts that, despite defendant's contractual undertaking to do so, section 5023.5 does not authorize defendant to enter into contracts for laboratory services. For this proposition, plaintiff relies on subdivision (e) of section 5023.5, which states that the Department and its designated health care network provider (defendant) "may enter into exclusive or nonexclusive contracts on a bid or negotiated basis for hospital, physician, and ambulance services contracts." Plaintiff points out that subdivision (e) does not mention laboratory services, and concludes this means that the Department's designated health care network provider cannot subcontract for laboratory services, but only for "hospital, physician, and ambulance services contracts." (§ 5023.5, subd. (e).)
While we need not, and do not, make a definitive determination of the point, we, like the trial court, are not persuaded to adopt plaintiff's position. Nothing in section 5023.5 expressly prohibits the Department's health care network provider from contracting for laboratory and other medical services not listed in subdivision (e). And the amendments made to the statute in 2009 likewise suggest no such prohibition was intended.
When section 5023.5 was enacted in 2004, it authorized the Department to contract "with providers of emergency health care services." (Former Pen. Code, § 5023.5, subd. (a), added by Stats. 2004, ch. 227, § 89, p. 2639.) The statute was amended in 2009 to authorize the Department to contract "with providers of health services and health care network providers, including . . . health care network managers." (§ 5023.5, subd. (a).) The 2009 amendments also added designated rate caps for contract providers of hospital, physician and ambulance services (§ 5023.5, subd. (c)); specified that those maximum rates would not apply to contracts entered into through the Department's health care network provider (§ 5023.5, subd. (d)); and added subdivision (e), stating that the Department and its designated health care network provider could "enter into exclusive or nonexclusive contracts on a bid or negotiated basis for hospital, physician, and ambulance services contracts." (§ 5023.5, subd. (e).) Thus, the provision on which plaintiff relies appears to be of a piece with the other changes made in 2009, setting maximum rates for those particular services and making exceptions to those maximum rates where either the Department or its network provider contracted for those services.
In short, there appears to be nothing in section 5023.5, subdivision (e) that limits the broad authority granted to the Department in subdivision (a) to contract with a "health care network provider," and such a provider by any rational definition is an entity that may provide all categories of necessary health care services. Plaintiff's contrary construction, that a "health care network provider" cannot contract with providers of all manner of health care services when its contract with the Department (which is expressly authorized by subdivision (a)) specifically requires it to do so, makes little sense. We interpret statutes to avoid absurd results. (Torres v. Parkhouse Tire Service, Inc. (2001) 26 Cal.4th 995, 1003 ["In the end, we '"must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences."'"].)
Plaintiff also contends it is likely to prevail on the merits of its claim because defendant was required to but did not afford plaintiff the common law right to fair procedure. (Potvin v. Metropolitan Life Ins. Co. (2000) 22 Cal.4th 1060 (Potvin).)Again, we see no abuse of discretion in the trial court's contrary conclusion.
In Potvin, the Supreme Court explained that the common law has long recognized that decisionmaking by private organizations that affect the public interest must, in certain situations, be both substantively rational and procedurally fair. (Potvin, supra, 22 Cal.4th at pp. 1066, 1070; see Yari v. Producers Guild of America, Inc. (2008) 161 Cal.App.4th 172, 176 (Yari) [right to fair procedure has its origin in cases "concern[ing] exclusion or expulsion from membership in a gatekeeper organization" and which hold that the right to practice a lawful trade or profession is fundamental and requires protection against arbitrary interference by either government or private entities].)
Potvin held that the relationship between an insurer and its preferred provider physicians significantly affects the public interest (Potvin, supra, 22 Cal.4th at p. 1071), and that an insurer who removes a doctor from one of its preferred provider lists must comply with the common law right to fair procedure, but "only when the insurer possesses power so substantial that the removal significantly impairs the ability of an ordinary, competent physician to practice medicine or a medical specialty in a particular geographic area, thereby affecting an important, substantial economic interest." (Ibid.)When the insurer possesses such power, the removal "must be 'both substantively rational and procedurally fair.'" (Id. at p. 1072.)
In Palm Medical Group, Inc. v. State Comp. Ins. Fund (2008) 161 Cal.App.4th 206, the court of appeal held that the right of fair procedure "extends to a medical corporation as well as to an individual physician." (Id. at p. 217 [reinstating a jury verdict that the defendant "'possessed power so substantial over the market for the treatment of occupational injuries in the Fresno area in 2001-2002 that the failure to admit an ordinary, competent medical provider to its [PPN] [preferred provider network] would significantly impair that provider's ability to practice occupational medicine in the Fresno area' and, therefore, that [the defendant] owed [the plaintiff medical corporation] a duty of fair procedure in acting on its application to the PPN" (id. at p. 210, first brackets in original)].)
We agree with the trial court's implicit conclusion that plaintiff's attempt to fit itself into the principles described in Potvin is unlikely to succeed. This case does not involve admission to or expulsion from a preferred provider network, or membership in a mutual aid society or a labor union or a professional association. (See Potvin, supra, 22 Cal.4th at pp. 1066-1070 [describing cases].) It does not involve "membership in a gatekeeper organization." (Yari, supra, 161 Cal.App.4th at pp. 176 ["the right applies only to private decisions which can effectively deprive an individual of the ability to practice a trade or profession" (id. at p. 177)].) And it does not involve a defendant with power over the statewide market for laboratory services. Rather, it involves bidding by two competitors for a contract to provide laboratory services to a single segment of the overall market for laboratory services (the state's prison inmates). (Cf. id. at p. 179 ["no case holds that the doctrine applies to all private decisions which have economic ramifications"].) In short, plaintiff has not shown the trial court abused its discretion in concluding that plaintiff was unlikely to succeed on the merits of its claim that defendant violated the common law fair procedure doctrine.
Finally, even if one could find an abuse of discretion in the trial court's conclusion that plaintiff was unlikely to succeed on the merits of its claim, plaintiff entirely failed to establish that it was likely to suffer greater injury from denial of the injunction than defendant would suffer if it were granted. (IT Corp. v. County of Imperial (1983) 35 Cal.3d 63, 69-70 [the second factor trial court is to evaluate "is the interim harm that the plaintiff is likely to sustain if the injunction were denied as compared to the harm that the defendant is likely to suffer if the preliminary injunction were issued"].) None of the points that a trial court considers in evaluating comparative harm - "'such things as the inadequacy of other remedies, the degree of irreparable harm, and the necessity of preserving the status quo'" (14859 Moorpark, supra, 63 Cal.App.4th at p. 1402) - weighs in plaintiff's favor.
Plaintiff did not show that monetary damages would be inadequate or that it would otherwise suffer irreparable harm absent an injunction. (See Abrams v. St. John's Hospital & Health Center (1994) 25 Cal.App.4th 628, 639, fn. 2 [if injuries may be adequately compensated by a judgment for money damages, there is no irreparable harm to plaintiffs].) The claim that some of plaintiff's employees will be laid off as a result of plaintiff's loss of the prison business does not constitute harm to plaintiff, and is in any event speculative; one can as well speculate that the winning bidder will require additional employees for the new prison business it has acquired. And there was no showing at all of any necessity to preserve the status quo. Indeed, an injunction would have undermined the public interest in prompt implementation of efforts to improve the delivery of healthcare to prison inmates statewide.
In sum, plaintiff has failed to show any abuse of discretion in the trial court's order denying its application for a preliminary injunction.
DISPOSITION
The order is affirmed. Respondents are to recover their costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
GRIMES, J. WE CONCUR:
BIGELOW, P.J. FLIER, J.