Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Imperial County No. ECU04190, Jeffrey B. Jones, Judge.
HUFFMAN, J.
This is a breach of contract action between plaintiff and appellant Pioneers Memorial Health Care District, a hospital and health care organization (the District), and defendant and respondent, a nonprofit employee benefit health plan, Robert F. Kennedy Farm Workers Medical Plan (the Medical Plan). The District received and treated patients who were enrolled in the Medical Plan, pursuant to a separate set of contracts, (1) a Hospital Contract between the District and a third party intermediary, Community Care Network (CCN), a managed health care organization, under which CCN obtained a discounted rate on medical care that the District would supply to patients who belonged to certain health care plans, and (2) a Payor Base Agreement (Payor Agreement) between the Medical Plan and CCN, to utilize certain agreed upon health care providers, such as the District, for providing care to enrolled beneficiaries in the Medical Plan as patients, and to pay the providers at the specified rates. CCN is not a party to this action or appeal.
In its complaint, the District sought to recover from the Medical Plan $77,468.47 contract or tort damages for unpaid bills for hospital care that it had rendered in 2005 to a participant who was enrolled in the Medical Plan. The Medical Plan moved for summary judgment, arguing that its separate Payor Agreement with CCN had been incorporated by reference into the District's Hospital Contract, and that this incorporation should include or lead to a recognition of certain conditions and limitations that apply to the Payor Agreement (specifically, an annual benefits limitation per patient, set pursuant to the Medical Plan's Summary Plan Description (SPD) that it provided to its participants).
The trial court granted summary judgment in favor of the Medical Plan. (Code Civ. Proc., § 437c.) The court ruled that, as a matter of law, the required showing of privity for the only claim pursued as of the time of hearing, breach of contract, was absent as between the District and the Medical Plan, and their basic two contracts with CCN did not supply the required contractual relationship as between the District and the Medical Plan.
The District appeals, arguing that the trial court erroneously failed to recognize that contractual duties were created between itself and the Medical Plan. The District claims that when the Medical Plan, pursuant to its Payor Agreement, paid to the District an amount due, calculated according to the patient/beneficiary's entitlement to benefits (which was limited by the Medical Plan's SPD annual maximum benefits amount), the Medical Plan acknowledged that some contractual relationship existed between the District and the Medical Plan, and that such a relationship should be enforceable in damages up to the level of the negotiated rates under the Hospital Contract. The District relies on theories of ratification, quasi-contract, or public policy based duties, for its claim of entitlement to payment by the Medical Plan of all of the patient's unpaid balance ($77,248.41).
In light of the undisputed showing in the record about the actual terms of the two separate contracts involved, and their specialized nature, we agree with the trial court's analysis that the Medical Plan did not incur any direct or implied contractual liability to the District for the subject unpaid medical bills. The two CCN contracts separately entered into by the District and the Medical Plan each impose contractual duties only upon the named parties to them, which did not include one another. The District's complaint for breach of contract has no merit, and we affirm the summary judgment.
FACTUAL AND PROCEDURAL HISTORY
A. Care Given to Patient; Complaint
The District is a health care provider in CCN's managed health care network, pursuant to its Hospital Contract. This Medical Plan, a nonprofit entity authorized by ERISA (Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq.), is funded by employer contributions to provide medical coverage for enrolled farm workers.
In June and July, 2005 one of the Medical Plan's beneficiaries, G. R. (Patient), had a medical emergency that required him to undergo surgery and follow-up care at the District's hospital. His bills amounted to $122,616.91. After the Medical Plan, his primary benefits provider, he was covered by Medicare and Medi-Cal as secondary insurers. He has since passed away.
The District presented to the Medical Plan its claim for payment for services provided to Patient, less the discounted amount arranged by CCN (totaling $104,224.37). Pursuant to the Payor Agreement, the Medical Plan paid the District $26,755.90, an amount that represented the remainder of the $70,000 annual maximum it allowed to that patient. This left the District with $77,468.47 in outstanding unpaid medical bills. The District continued to seek to recover the difference between the discounted cost of the medical services and the amount received under the Payor Agreement.
In February 2008, the District filed this action against the Medical Plan, alleging several causes of action, mainly breach of contract. Originally, the District also sought recovery for breach of oral contract, negligent misrepresentation and quasi-contract/ common counts, but it has conceded that those claims are barred by the applicable statutes of limitation, and it does not pursue them on appeal. Although the matter was initially removed to federal court due to concerns under ERISA, it was remanded to superior court, where a demurrer was overruled.
B. Motion Proceedings; CCN Agreements
The Medical Plan moved for summary judgment on the complaint, arguing that the structure of the separate CCN Hospital Contract and the CCN Payor Agreement meant that the essential element for contractual liability, privity between the District and the Medical Plan, could not be proven as pled in the breach of contract claim. The Medical Plan supplied copies of the Hospital Contract and the Payor Agreement, attorney declarations authenticating them, and a declaration from the Medical Plan's administrator about the SPD's limitations and conditions upon a plan enrollee's receipt of benefits.
In the Hospital Contract, the District authorized CCN to act on its behalf in contracting for the provision of medical services, and the District would provide such care to beneficiaries of payor organizations at a discounted rate (set at 15 percent in its Appendix A). The Hospital Contract states that CCN and the District are independent entities contracting with each other solely for the purpose of carrying out the provisions of the contract, and neither party intended to create any third party beneficiary rights in the patient/beneficiaries who would receive care.
As particularly relevant here, the Hospital Contract states that it will provide inpatient and outpatient services to beneficiaries, "at the Reimbursement Amounts determined and established by CCN through Payor Agreements with Payors, which Payor Agreements are incorporated herein by reference." (§ 3.1(a).) In section 4.1 of the Hospital Contract, the District agreed to receive payment from the Payors at the reimbursement amounts set forth in the appendix to the Hospital Contract (the 15 percent discount). In section 4.2 of the Hospital Contract, the District agreed to bill the Payors for the provision of services, and that the Payors shall only be liable for the amounts provided for in section 4.1, "less amounts from copayments, deductibles, and coordination of benefits." Also, the District agreed to accept payment arrangements by assignment for services provided to patients, under the applicable beneficiary agreements. (§ 3.5.) The Hospital Contract contained an integration clause stating there were no extrinsic or collateral agreements or undertakings of any kind.
With respect to the separate Payor Agreements entered into by CCN, the Medical Plan provided evidence that the Payor Agreement expressly created independent contractor relationships between CCN and the Payor, and the agreement was not intended to create any third party rights. Under the Payor Agreement, the Medical Plan agreed to reimburse health care providers in the CCN network, such as the District, for services rendered to its beneficiaries, at the rates specified in CCN's Hospital Contracts.
Specifically, section 5.2 in the Payor Agreement states that with respect to the payment of claims, the "Payor shall retain full responsibility for all medical benefits, " and related expenses or services, "which are required to be paid or provided under applicable state and federal laws." Also, "Payor retains full responsibility for all final determinations regarding the obligation of Payor or any other person to pay for or otherwise provide benefits to Covered Members, including without limitation claims by or against employers, covered members, members of the CCN network, facilities, providers, or other health care service providers."
The Payor Agreement also specifies that CCN is not a claims administrator, and CCN was engaged "solely for the purpose of making recommendations with respect to provision and payment of medical benefits." The Medical Plan did not receive copies from CCN of the provider or Hospital Contracts. The Medical Plan did not contract directly with health care providers, such as the District.
The Medical Plan provided to its beneficiaries a copy of the SPD, which is a 114-page outline of the benefits payable and the restrictions on coverage under the Plan. According to the Medical Plan's administrator, the SPD sets forth eligibility requirements, a description of benefits, and procedures for obtaining benefits. It also sets forth various limitations and conditions on the receipt of benefits including, among other things, an annual payable medical expenses cap of $70,000. The Medical Plan pays providers according to the reimbursement amounts specified in the Hospital Contracts, but its normal practice is that "any payments for such services are subject to the limitations and conditions set forth in the SPD."
C. Opposition to Motion for Summary Judgment and Ruling
The District opposed the motion for summary judgment on the contract claim, while conceding that the statute of limitations had run on its other three causes of action. The District agreed with many of the Medical Plan's statements of undisputed material fact, except that the District disputed the assertion of no privity. In the complaint, the District pled that (1) in exchange for services provided by the District, the Medical Plan had agreed to pay it pursuant to the CCN contract rates, and (2) the Medical Plan's representative had orally directly promised to pay the District the negotiated rates under the Hospital Contract, in return for the provision of care.
Accordingly, the District argued that when the Payor Agreement was incorporated by reference into the Hospital Contract, it served to create contractual obligations between and amongst these parties. The District contended that when these two CCN contracts were read together, they created a single instrument that gave rise to a three-way contractual relationship. However, the SPD, limiting benefits, is not expressly incorporated into the Payor Agreement by reference, and the District's representatives claimed that it never received a copy of the SPD. During the 2005 insurance representative verification phone call, the day after the patient was admitted, the Medical Plan did not mention any annual benefit maximums that would apply to the patient. Thus, the District essentially argued it should not be bound by the SPD, and it should not bear the burden of the Medical Plan's failure to properly communicate any plan limitations that would be claimed.
Following oral argument, the trial court issued an order granting summary judgment on the theory that, as a matter of law, no cause of action could be maintained for breach of contract, due to the lack of a contract and privity between those two entities. The other causes of action were dismissed with prejudice due to the concessions by the District that the limitations periods had expired.
The District appeals. We construe the appeal as being taken from the summary judgment, even though the record contains only the summary judgment order that was entered. "The substance and effect of the order, not its label or form, determines whether it is appealable as a final judgment. [Citations.] This order has all the earmarks of a final judgment. It is final in the sense that it leaves nothing for future consideration. [Citations.]" (Joyce v. Black (1990) 217 Cal.App.3d 318, 321.)
DISCUSSION
I
STANDARDS OF REVIEW
In appeals from summary judgments, we review the court's ruling on the motion de novo. (Lunardi v. Great-West Life Assurance Co. (1995) 37 Cal.App.4th 807, 819.) In doing so, we "apply the same rules and standards that govern a trial court's determination of a motion for summary judgment. [Citation.]" (Distefano v. Forester (2001) 85 Cal.App.4th 1249, 1258.) Summary judgment should be granted if "all the papers submitted show that there is no triable issue as to any material fact and... the moving party is entitled to a judgment as a matter of law." (§ 437c, subd. (c).)
To satisfy its burden, a moving defendant is not required to "conclusively negate an element of the plaintiff's cause of action.... All that the defendant need do is to 'show[] that one or more elements of the cause of action... cannot be established' by the plaintiff." (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 853 (Aguilar), fn. omitted.)
This three-step analysis is required at both the trial and appellate levels: Identify the issues framed by the pleadings, and then determine whether the moving party has established facts which negate the opponents' claim and justify a judgment in the movant's favor. " '[I]f the summary judgment motion prima facie justifies a judgment, we determine whether the opposition demonstrates the existence of a triable, material factual issue. [Citation.]' " (Aetna Health Plans of Cal., Inc. v. Yucaipa-Calimesa Joint Unified School Dist. (1999) 72 Cal.App.4th 1175, 1186 (Aetna); § 437c, subd. (p)(2).)
In opposing the motion, " '[t]he plaintiff... may not rely upon the mere allegations or denials' of his 'pleadings to show that a triable issue of material fact exists but, instead, ' must 'set forth the specific facts showing that a triable issue of material fact exists....' " (Aguilar, supra, 25 Cal.4th 826, 849; Brundage v. Hahn (1997) 57 Cal.App.4th 228, 234.) Questions of law arising from the pleadings and evidence are reviewed on a de novo basis. (Aetna, supra, 72 Cal.App.4th 1175, 1187.) "The 'fact' that an allegation has been made is perhaps a fact; the legal meaning of the allegation made presents a question of law." (Id. at p. 1188.)
II
THE DISTRICT'S ARGUMENTS ON APPEAL; ANALYSIS
We next outline the District's various contentions supporting their claim for contractual recovery from the Medical Plan. This is not a case depending on factual disputes, but rather requires application of contract principles in light of other controlling rules of law.
A. Contract Construction
The District contends that when the CCN contracts are read together, they amounted to a well recognized, two-step hospital network arrangement that should impose burdens as well as benefits upon the Health Plan. (Civ. Code, § 3521; see Parnell v. Adventist Health System West (2005) 35 Cal.4th 595, 598-599(Parnell) [Hospital Lien Act interpretation, Civ. Code, § 3045.1 et seq.].) In Parnell, the Supreme Court considered whether that statutory hospital lien could be asserted against a patient treated by a hospital for injuries received from a third party tortfeasor, where that treatment was received pursuant to the patient's health plan's payor contract with a preferred provider organization, CCN. In turn, the hospital had separately contracted with CCN to provide care to such patients who were members of such health plans (i.e., those that had entered into CCN Payor Agreements). The terms of the hospital's contract provided that the hospital would accept payment in full, in the amount of the discounted rates that it agreed to with CNN. (Parnell, supra, at pp. 598-599.)
In Parnell, the patient sought separate recovery from the third party tortfeasor, and the hospital filed its lien, seeking to recover the difference between the discounted amount it had already been paid, and the "actual" cost of the medical services. The Supreme Court held that since the hospital had already received payments from the patient and his health insurer, and had agreed to accept that amount as "payment in full" for its services, there was no longer any amount owing to the hospital. It could not assert a statutory hospital lien for the difference between its charges and the amount received, in light of the negotiated network agreements. (Parnell, supra, 35 Cal.4th 595, 609.)
The District relies upon Parnell to argue that California courts have generally recognized the legitimacy of hospital network agreements, such as CCN promotes. (Parnell, supra at 35 Cal.4th at pp. 598-599.) Although Parnell interpreted and applied such network agreements, it did so in the context of resolving a specific statutory dispute over hospital liens in the context of third party tortfeasors, and its narrow holding does not shed any light upon the contractual interpretation questions here. "Language used in any opinion is of course to be understood in the light of the facts and the issue then before the court, and an opinion is not authority for a proposition not therein considered." (Ginns v. Savage (1964) 61 Cal.2d 520, 524, fn. 2.) Parnell does not assist us in resolving the specific contractual questions presented here.
Next, the District relies on general arguments that the trial court must have misunderstood the issues presented, when it gave different examples at oral argument of other sets of related contracts. It is well accepted that we review the ruling and not the rationale of the trial court. (Davey v. Southern Pacific Co. (1897) 116 Cal. 325, 329.) We must look to the actual terms of the contracts to interpret the respective obligations of the parties to them. Both contracts express an intention not to create third party beneficiary rights, and the District does not argue any such theory.
Instead, the District essentially presents only a series of labels to explain its beliefs that it is entitled to contract damages from the Medical Plan. The District says these were "two separate but assuredly interconnected contracts, " and that there is "full contractual linkage between" itself and the Medical Plan, and that there are factual issues about a "commonality of interest" that existed, for purposes of establishing privity. The District claims it could have had no purpose in entering into its Hospital Contract, if the Medical Plan may escape such "obligations" to it.
Under Civil Code section 1642, it is proper to read together several related contracts that were made between the same parties, as parts of substantially one transaction. Here, however, there were essentially two transactions. In section 3.1(a) of the Hospital Contract (executed in March 1993), the Payor Agreements are incorporated by reference, and the District agreed that the Payors would pay the contract hospital for its services. The Hospital Contracts agreed to bill the Payors for the services, "and Payors shall only be liable for the amounts provided for [at the agreed upon rates], less amounts from copayments, deductibles, and coordination of benefits." (Hospital Contract, § 4.2(a).)
Turning to the Payor Agreement (executed in June 2002), the Medical Plan agreed to retain full responsibility to pay benefits, and to make "all final determinations" about the extent of its liability to the District, in terms of the obligations it undertook to the patient/beneficiaries. (Payor Agreement, § 5.2.) The District was placed on notice in the Hospital Contract that the Medical Plan reserved this responsibility, through section 4.2(a) of the Hospital Contract. That is, the District agreed to bill the Payors for the provision of services, and that the Payors shall only be liable for the amounts provided for in section 4.1 (15 percent discount), "less amounts from copayments, deductibles, and coordination of benefits." (Hospital Contract, § 4.2(a).) The SPD limitations in the Medical Plan closely resemble that same type of reduction of payments authorized in the Hospital Contract, even though the District was apparently not expressly notified about the Medical Plan's SPD limitations.
Although the District argues that it should have received more notification of these SPD limitations, it was arguably placed on constructive or inquiry notice of them when the Payor Agreement was incorporated by reference into the Hospital Contract. (See DVD Copy Control Assn., Inc. v. Kaleidescape, Inc. (2009) 176 Cal.App.4th 697, 713 ["terms of an extrinsic document may be incorporated by reference in a contract so long as (1) the reference is clear and unequivocal, (2) the reference is called to the attention of the other party and he consents thereto, and (3) the terms of the incorporated document are known or easily available to the contracting parties"].)
For example, in the Payor Agreement, the Medical Plan retained the ability to make determinations about the level of benefits available to its enrollees. The District did not attempt to show that any concealment of that process had taken place, nor did it show that it made any efforts on its own behalf to investigate the extent of the authorized reductions that the Medical Plan could make, upon receipt of bills from the District. A contract can be interpreted with the aid of usage or custom in a particular industry, and these were standardized Hospital Contracts and Payor Agreements. (See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 755, p. 846.)
It is not enough for the District merely to plead the existence of a written contract to which it is not a party, when the referenced documents in the summary judgment proceedings show otherwise. (See Aetna, supra, 72 Cal.App.4th 1175, 1187-1188 ["The 'fact' that an allegation has been made is perhaps a fact; the legal meaning of the allegation made presents a question of law"].) If alternative quasi-contract theories about a written contract are still being argued, although those theories were not pursued at the trial level, they lack support in the record. (See Century Indemnity Co. v. Superior Court (1996) 50 Cal.App.4th 1115, 1123-1124 [implied equitable contribution rights asserted in an action are not based in a written contract and are subject to two-year statute of limitations].) In other words, the normal rules of contract interpretation do not create a direct contractual obligation between the District and the Medical Plan, and the labels to the contrary as suggested by the District are not supported by any accepted contract interpretation principles.
B. Ratification Theory
The District next argues that a direct contractual relationship was recognized and ratified when the Medical Plan made partial payment of the District's bills sent to it, pursuant to the respective business representatives' conduct of their billing and payment activities. Apparently, the District is relying on a principal-agent theory between itself, CCN, and/or the Medical Plan. (See Civ. Code, § 2307 ["An agency may be created, and an authority may be conferred, by a precedent authorization or a subsequent ratification;"] 3 Witkin, Summary of Cal. Law, supra, Agency and Employment, § 139, p. 184 [even if an agent, at the time of the doing of an act, is without actual or ostensible authority, "the act may be rendered valid and binding on the principal, as of the time the unauthorized act was done, if the principal ratifies and thus gives effect to it"].)
The District cites to ratification cases in the corporate law context, such as Gaillard v. Natomas Co. (1989) 208 Cal.App.3d 1250, 1273-1274, for the proposition that "[u]nder the doctrine of ratification, a corporation is estopped from denying the validity or enforceability of a contract, after accepting performance and making payment on account thereof." However, that statement was made in the context of allowing recovery to shareholders in their derivative action, in which the corporation was only a nominal party, and in which the gravamen of the action challenged certain directors' compensation that was obtained through perpetrating a wrong on the corporation. It therefore made no difference in Gaillard that the corporation had "approved" the wrongful contracts, and they could still be set aside upon other, sufficient grounds. (Ibid.)
Here, the District cannot properly claim that when the Medical Plan made partial payment to the District, according to the Payor Agreement and as adjusted by its own benefit limitations, it was somehow acknowledging that it should instead have made a complete payment of all the amounts billed by the District (in disregard of the SPD limitations). As a nonprofit employee benefit health plan, the Medical Plan did not ratify its own contract performance (payment of the amount up to the annual maximum) in such a manner as to enlarge its obligations beyond what the Payor Agreement required it to do (determine its obligations to the beneficiaries and hence to the District, all within the negotiated CCN rates).
The other cases relied on by the District are also distinguishable, because they discuss concepts of ratification of the conduct of another, in terms of worker's compensation in the employee assault context (Fretland v. County of Humboldt (1999) 69 Cal.App.4th 1478, 1491), or in dealing with ratification as a question of fact. (See, e.g., StreetScenes v. ITC Entertainment Group, Inc. (2002) 103 Cal.App.4th 233, 242 [when investment fraud is alleged against a film company, agency for the company in making misrepresentations could be found, even though the company claimed that the responsible rogue producer was not its agent].) Ratification, an agency concept, is not a germane issue in this context of contract rules.
In other insurance policy contexts, "a third party administrator of a group policy is treated as the agent of the insurer, rather than the group members. Thus, where the employer acts as the claims administrator of an employee group policy, the insurer may be bound by the employer's mistakes and misrepresentations in handling claims." (Croskey, et al., Cal. Practice Guide: Insurance Litigation (The Rutter Group 2010) [¶] 6:1341, p. 6F-5; italics added.) Here, however, the Hospital Contract says that CCN is an independent contractor, and the Payor Agreement says that CCN is not a claims administrator. There is no basis in this record to support application of agency principles, to create additional obligations, with regard to the Medical Plan's performance of duties under its own Payor Agreement, according to the method set out in the Hospital Contract.
Even if this ratification theory had any merit, the record does not show that it was clearly presented to the trial court in the motion proceedings. "The rule is well settled that the theory upon which a case is tried must be adhered to on appeal. A party is not permitted to change his position and adopt a new and different theory on appeal. To permit him to do so would not only be unfair to the trial court, but manifestly unjust to the opposing litigant." (Ernst v. Searle (1933) 218 Cal. 233, 240-241.) The level of payments made by the Medical Plan to the District does not supply a basis to impose extracontractual obligations on the Medical Plan.
C. Public Policy Theory
In its reply brief, the District seeks to bring in a tort theory from the negligence context, for purposes of imposing the alleged monetary obligations upon the Medical Plan. The District takes language from Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 57-58 (Quelimane), out of context, to the effect that "[r]ecognition of a duty to manage business affairs so as to prevent purely economic loss to third parties in their financial transactions is the exception, not the rule, in negligence law. Privity of contract is no longer necessary to recognition of a duty in the business context and public policy may dictate the existence of a duty to third parties." (Ibid.; italics added.)
In Quelimane, the high court was discussing " '[t]he basic tests for determining the existence of such a duty... set forth in Biakanja v. Irving [(1958)] 49 Cal.2d 647, 650, as follows: "The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are [1] the extent to which the transaction was intended to affect the plaintiff, [2] the foreseeability of harm to him, [3] the degree of certainty that the plaintiff suffered injury, [4] the closeness of the connection between the defendant's conduct and the injury suffered, [5] the moral blame attached to the defendant's conduct, and [6] the policy of preventing future harm." ' " (Quelimane, supra, 19 Cal.4th at p. 58.)
However, in Quelimane the purpose of the discussion was directed toward determining whether there should be any negligence-based duty "to avoid business decisions that may affect the financial interests of third parties, or to use due care in deciding whether to enter into contractual relations with another, " and the court declined to impose such a duty in the business context. (Quelimane, supra, 19 Cal.4th 26, 58.) Those negligence considerations are inapposite in this contractual context, particularly since the District has conceded that its negligent misrepresentation claim was time-barred. (See 1 Witkin, Summary of Cal. Law, supra, Contracts, § 265, pp. 296-297 [distinguishing between this six-part negligence test and the rule that "[e]nforcement of a contract is not unconscionable if the other party has relied on the mistake"].)
For all of the above reasons, the Medical Plan adequately demonstrated, as a matter of law, that privity was lacking, such that " 'one or more elements of the cause of action... cannot be established' by the plaintiff. [Citation.]" (Aguilar, supra, 25 Cal.4th 826, 853.) The trial court correctly granted summary judgment.
DISPOSITION
The judgment is affirmed. Costs are awarded to Respondent.
WE CONCUR: McCONNELL, P. J., AARON, J.