Filed 4/19/21 Heinz v. Cal. Public Employees’ Retirement System CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
BRADLEY HEINZ et al., B300089
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC664844
v. and BS169444)
CALIFORNIA PUBLIC
EMPLOYEES’ RETIREMENT
SYSTEM et al.,
Defendants and
Respondents.
APPEAL from a judgment and an order of the Superior
Court of Los Angeles County, Amy D. Hogue, Judge. The
judgment of dismissal is reversed. The order denying the petition
for writ of administrative mandamus is affirmed.
Law Offices of John Michael Jensen and John Michael
Jensen for Plaintiff and Appellant.
Reed Smith, Raymond A. Cardozo, Amir Shlesinger and
Todd Kim for Defendants and Respondents.
_________________
Bradley Heinz, a former state employee, on behalf of
himself and a putative class of individuals enrolled in preferred
provider organization (PPO) health insurance offered or
administered by the California Public Employees’ Retirement
System and its Board of Administration (collectively CalPERS)
and BlueCross of California dba Anthem Blue Cross (Anthem),
sued CalPERS and Anthem alleging they had falsely represented
the methodology for calculating reimbursements for costs
incurred when seeing a nonpreferred (out-of-network) healthcare
provider for nonemergency services and failed to properly
reimburse their members for those costs. As part of his lawsuit
Heinz also petitioned for a writ of administrative mandamus
under Code of Civil Procedure section 1094.5 to overturn
CalPERS’s rejection of his requests for additional reimbursement
for out-of-network services provided to him in 2008 and 2009.
The trial court denied the writ petition and thereafter
sustained CalPERS and Anthem’s demurrer to Heinz’s first
amended complaint without leave to amend, entering judgment
on their behalf. The court ruled the adverse administrative
decision and order denying Heinz’s writ petition precluded his
contract and tort causes of action and, to the extent any cause of
action alleged claims separate from those presented in the
administrative proceeding, they were time-barred.
We affirm the trial court’s order denying the petition for
writ of administrative mandamus but reverse the judgment
dismissing the action and remand with directions to enter a new
2
order sustaining in part and overruling in part the demurrer to
the first amended complaint.
FACTUAL AND PROCEDURAL BACKGROUND
1. CalPERS Health Plans
In addition to administering the retirement system for
employees of the State of California and other public entities,
CalPERS, a unit of the Government Operations Agency (Gov.
Code, § 20002), offers its members PPO and other types of
managed care health plans as required by the Public Employees’
Medical and Hospital Care Act (Gov. Code, § 22750 et seq.).
CalPERS contracts with Anthem to administer its PPO plans:
PERSCare, PERS Choice and PERS Select.
The evidence of coverage (EOC) establishes the terms and
conditions of coverage and governs a health plan’s obligations to
its members and their dependents. (Health & Saf. Code, § 1345,
subd. (d) [“‘[e]vidence of coverage’ means any certificate,
agreement, contract, brochure, or letter of entitlement issued to a
subscriber or enrollee setting forth the coverage to which the
subscriber or enrollee is entitled”].) The EOC’s contents are
regulated by the Department of Managed Health Care. (Cal.
Code Regs., tit. 28, § 1300.63.1.)
Reimbursement for services under PPO plans differs
depending on whether members use in-network (preferred)
providers or out-of-network (nonpreferred) providers. In-network
providers have contracts with Anthem to accept its payment for
services, plus any applicable member deductible and copayment,
as payment in full for covered services. Out-of-network providers
have no contract with Anthem.
Reimbursements are structured to encourage members to
seek services from in-network preferred providers. In general, a
3
member’s copayment responsibility for any particular healthcare
service is a higher percentage of the “Allowable Amount” for out-
of-network providers (40 percent) than for in-network providers
(10 percent or 20 percent, depending on the service and the
plan).1
Plan members are not responsible to pay preferred
providers any amounts above the approved Allowable Amount.
In contrast, as stated in the EOC’s for the 2008 PERSCare plan
and the 2009 PERS Choice plan, at issue in this case, “The
Allowable Amount for covered services provided by Non-Preferred
Providers is usually lower than what they customarily charge. . . .
Non-Preferred Providers may bill the Member for the difference
between the Allowable Amount and the Non-Preferred Provider’s
billed charges in addition to applicable Member deductibles and
copayments.”
The definition section of the 2008 PERSCare and 2009
PERS Choice EOC’s provide the Allowable Amount for a service
will be the lesser of the provider’s billed charge or Anthem’s
allowance, defined as, “1. [T]he amount that [Anthem] has
determined is an appropriate payment for the services(s)
rendered in the provider’s geographic area, based on such factors
as the Plan’s evaluation of the value of the service(s) relative to
the value of other services, market considerations, and provider
charge patterns; or [¶] 2. [S]uch other amount as the Preferred
Provider and [Anthem] have agreed will be accepted as payment
for the service(s) rendered; or [¶] 3. [I]f an amount is not
determined as described in either (1) or (2) above, the amount
1 For some services plan members pay a fixed (typically $20)
copay for treatment by a preferred provider, rather than a
percentage of the Allowable Amount.
4
that [Anthem] determines is appropriate considering the
particular circumstances and the services rendered.” That is, the
Allowable Amount is the usual, customary and reasonable (UCR)
rate, a recognized method for determining health care prices
(option one); the contracted rate (option two); or the amount
Anthem determines in its discretion is appropriate (option three).
2. Heinz’s Reimbursed Amounts for Out-of-network Services
Heinz was enrolled in the PERSCare PPO from 2006
through 2008 and the PERS Choice PPO from 2009 through
2014. Heinz received treatment from Dr. Joe A. Walker, a
psychiatrist, for nonemergency healthcare services on a regular
basis between 2006 and 2015.
Before May 2008 Dr. Walker was a member of a medical
group and under contract with Anthem as a preferred provider.
As of April 2008 Dr. Walker billed $420 for a 50-minute visit.
Anthem had approved a contract payment rate for Dr. Walker of
$299.57 per visit (the Allowable Amount). Heinz made a
relatively small ($20) copayment to Dr. Walker, and Anthem paid
Dr. Walker the balance of the contract rate.
In May 2008 Dr. Walker terminated his affiliation with the
medical group with which he had been practicing and ceased to
contract with Anthem as a preferred provider. Dr. Walker
continued to state his hourly rate was $420, but billed Heinz
$250 per visit, which he subsequently increased to $275 per visit.
Anthem reimbursed Heinz for seeing Dr. Walker as an out-of-
network provider at the rate of 60 percent of the Allowable
Amount, which it reduced from $299.57 per visit to $113.31 per
visit for the period from May 2008 through 2009. Anthem thus
paid approximately $68 per visit; Heinz was responsible for the
balance of $182 per visit.
5
3. Heinz Pursues Anthem’s and CalPERS’s Administrative
Review Process
Anthem issued Heinz his first explanation of benefits form
for treatment by Dr. Walker as an out-of-network provider on
September 24, 2008, covering visits in May 2008. Dissatisfied
with the reduced reimbursement he received, Heinz on
September 25, 2008 submitted a member grievance form to
Anthem in accordance with its prescribed process for reviewing
claims. Heinz contended, under the EOC, the Allowable Amount
for Dr. Walker’s treatment should be the customary and
reasonable amount for the services provided. Anthem denied
Heinz’s claims for additional reimbursement, which had been
expanded through additional grievance filings to include billings
and reimbursements through 2009.2
After exhausting Anthem’s internal grievance and appeals
process, on June 15, 2009 Heinz appealed the reimbursement
issue to CalPERS. Throughout the appeal process Heinz, now
represented by counsel, asserted (through “amended appeals” and
in his trial and posttrial briefs) arguments beyond the specific
issue of the amount of reimbursement for his 2008 and 2009
visits with Dr. Walker, contending denial of out-of-network
reimbursements based on the methodology being used violated
constitutional, statutory and regulatory requirements governing
CalPERS and Anthem.3 CalPERS staff advised Heinz he could
2 In addition to his September 25, 2008 grievance, Heinz
filed grievances on November 8, 2008, January 12, 2009,
March 17, 2009 and July 7, 2009.
3 As discussed, notwithstanding his dissatisfaction with
Anthem’s methodology for reimbursement of members’ out-of-
network nonemergency healthcare services, Heinz reenrolled in
6
not raise claims other than the specific issue of reimbursement
presented to Anthem by his 2008 and 2009 grievances.
Heinz requested a formal hearing before an administrative
law judge from the Office of Administrative Hearings following
CalPERS’s administrative denial of his claims for additional
reimbursements (commonly referred to as a “paper review”). The
statement of issues prepared by CalPERS staff and filed
pursuant to Government Code section 11504 stated only
calculation of 2008 and 2009 reimbursements was at issue and
the only question presented was whether Anthem had complied
with the terms of the applicable EOC’s.4 At the hearing, where
Heinz again attempted to broaden the scope of the proceedings,
the administrative law judge ruled Heinz could not expand the
issues beyond those he had presented to Anthem.
The administrative law judge’s February 3, 2017 proposed
decision rejected Heinz’s claims for greater reimbursement,
finding Anthem had complied with the terms of the EOC in
determining the Allowable Amount for Dr. Walker’s services.
The judge relied in part on the 2014 decision in Orthopedic
Specialists of Southern California v. Public Employees’
Retirement System (2014) 228 Cal.App.4th 644 (Orthopedic
Specialists), which held no contractual or other requirement
PERS Choice from 2010 through 2014 and continued to submit
claims for his therapy sessions with Dr. Walker. The EOC’s
remained essentially unchanged during those years.
4 According to the statement of issues, “The issue to be
resolved is whether Anthem Blue Cross complied with the terms
of the EOC in denying respondent Heinz’s request for additional
reimbursement for services rendered by a Non-Preferred
Provider.”
7
obligated CalPERS to pay out-of-network providers of
nonemergency services at a usual and customary rate. Rather,
the EOC, which governs the issue of payment for nonemergency
services by out-of-network providers, “clearly states that an out-
of-network provider will be paid 60 percent of the Allowable
Amount, which is broadly defined as the amount Anthem ‘has
determined is an appropriate payment’ for the services rendered.”
(Id. at p. 648.) The CalPERS Board adopted the administrative
law judge’s proposed decision and thereafter denied Heinz’s
request for reconsideration.
On April 21, 2017, following CalPERS’s adoption of the
administrative law judge’s proposed decision, Heinz filed a
135-page claim under the Government Claims Act on behalf of
himself and a class of CalPERS members who had purchased
PPO insurance between 2008 and 2014, which is, in substance, a
precursor to the complaint he filed in superior court less than
two months later. The Government Claims Program rejected the
claim on May 18, 2017, stating it had no jurisdiction to consider
the claim because it had been presented more than one year after
the date the alleged damages accrued.
4. Heinz’s Lawsuit
Heinz filed a putative class action complaint on June 13,
2017 alleging causes of action for breach of contract, breach of
fiduciary duties, misrepresentation, unfair business practices and
violation of statutory duties and requesting a writ of
administrative mandamus against CalPERS to overturn its
decision rejecting his claims for additional reimbursement.
Although Heinz alleged a wide variety of wrongful acts by
CalPERS and Anthem, two theories principally animated the
lawsuit: (1) The promotional materials used to encourage
8
CalPERS members to enroll in Anthem’s PPO health plans,5 as
well as portions of the EOC itself (including a “payment
example”),6 while clearly stating reimbursement for use of out-of-
network providers for nonemergency services would be at a lower
percentage than for in-network providers, falsely indicated the
base Allowable Amount for services would be identical for in-
network and out-of-network providers; and (2) the definition of
Allowable Amount in the EOC that purports to give Anthem
unfettered discretion to set the Allowable Amount for out-of-
network providers without regard to the UCR rate, prevailing
standards or the rate at which in-network providers have
contracted is unlawful.
5. The Order Staying All Claims Other than Heinz’s
Petition for Administrative Mandamus
On May 7, 2018, following briefing on Heinz’s petition for
relief from his late filing of claims under the Government Claims
Act,7 the trial court ruled Heinz could not maintain claims other
than his request for administrative mandamus “unless and until
5 The 2008 Health Program Guide, attached as exhibit 52 to
Heinz’s complaint, for example, states, “A PPO is similar to a
traditional ‘fee-for-service’ plan, but you must use doctors in the
PPO provider network or pay higher co-insurance (percentage of
charges).”
6 The payment example from the EOC for the 2008
PERSCare plan, part of exhibit 24 to Heinz’s complaint, is
attached as an appendix to this opinion.
7 Concurrently with the filing of his putative class action
complaint, Heinz filed a petition for relief from the late filing of
his claims under the Government Claims Act. The two actions
were found to be related, and the class action designated the lead
case.
9
he prevails in his writ proceeding.” Accordingly, the court stayed
all claims in the action except for Heinz’s request for
administrative mandamus, pending resolution of that matter.
In its ruling the court (Hon. John Shepard Wiley Jr.) also
addressed whether Heinz was required to present a claim for
damages before filing suit and the issue of tolling or estoppel. As
to the latter issue, the court stated, “CalPERS incorrectly argues
Heinz’s pursuit of administrative remedies did not toll the
statute of limitations on his claims. . . . [W]hen a plaintiff
pursues relief on a claim in one forum, the statute of limitations
does not run in another forum. [Citation.] Equitable tolling
applies when the plaintiff’s filing in the first forum gives the
defendant timely notice of the claim, the defendant suffered no
prejudice in its ability to gather evidence to defend against the
second claim, and the plaintiff acted reasonably and in good faith
in filing the second claim. [Citation.] Heinz diligently pursued
relief via CalPERS’s Board of Administration. The pendency of
that action tolled the statute of limitations on his claims. [¶] . . .
To the extent Heinz has any claims remaining after resolution of
his request for administrative mandamus, his exhaustion of
administrative remedies tolled the statute of limitations on those
claims, even if the statute of limitations otherwise would have
elapsed.”
At the hearing counsel for CalPERS and Anthem expressed
its agreement with the court’s tentative ruling at a “global” level,
but said he disagreed with some specifics of the court’s analysis of
equitable tolling.8 In response, after noting its comments were on
8 Referring to the tentative ruling on equitable tolling,
counsel stated, “It may be correct in some of the senses of this
case, but I think it’s too blunt of a ruling for how detailed this
10
the record, the court stated CalPERS and Anthem could contest
application of equitable tolling in more detail at a later point in
the case without it being considered a motion for reconsideration.
6. Denial of the Petition for Writ of Administrative
Mandamus
In support of his petition for writ of administrative
mandamus Heinz argued CalPERS had misapplied the contract
definition of Allowable Amount as provided in the EOC’s for his
2008 and 2009 plans (that is, Anthem incorrectly calculated the
Allowable Amount) and, if Anthem was allowed to determine
Allowable Amount in its discretion, CalPERS’s delegation of that
authority to Anthem breached its fiduciary duty to him as a
member. Heinz also moved to augment the administrative record
to include excerpts from CalPERS’s contract with Anthem for the
PPO plans at issue, which Heinz obtained during discovery in the
superior court. CalPERS and Anthem opposed the motion to
augment on the grounds the material was irrelevant and Heinz
had failed to show diligence in attempting to obtain it for use
during the administrative hearing.
Following additional briefing the trial court (Hon. Amy D.
Hogue) denied both the motion to augment and the petition for
writ of administrative mandamus. As to the motion to augment,
the court found the CalPERS-Anthem contract was not relevant
to the issue adjudicated in the administrative proceeding. With
respect to the petition the court first ruled, contrary to Heinz’s
contention the administrative law judge improperly addressed a
“strawman argument,” the administrative record showed Heinz
case is and how many causes of action it has and how different
they are.”
11
had argued in his trial brief and at the hearing that Anthem and
CalPERS improperly reduced the Allowable Amount for
Dr. Walker’s services below the usual, customary, reasonable
allowed amount. Accordingly, it was entirely proper for the
administrative law judge to consider that argument and to rely
on Orthopedic Specialists, supra, 228 Cal.App.4th 644, to reject
Heinz’s contention Anthem was required to set the Allowable
Amount for Dr. Walker’s services at the UCR rate.
The court further found Heinz had failed to demonstrate
the administrative decision was based on an error of law or not
supported by substantial evidence, as required for issuance of the
writ of administrative mandamus. Emphasizing the payment
example in the EOC, which used the same Allowable Amount
figure to illustrate the difference between reimbursement for in-
network and out-of-network providers, expressly stated, “Note:
This is only an example. Allowable amount varies according to
procedure and provider of service,” the court ruled the payment
example could not reasonably be interpreted as a promise to
ensure that the Allowable Amount will always be the same for
the two types of providers.9
The court agreed with Heinz that, when applying the
definition of Allowable Amount in the EOC, Anthem could use
the third option, which authorized Anthem to determine the
appropriate amount to be paid “considering the particular
circumstances and the services rendered,” only if it has not
already determined an Allowable Amount using the first option
(the UCR rate) or the second option (a contracted amount). But,
9 The court reprinted in its order denying the petition a copy
of the payment example from the 2008 PERSCare EOC, which we
have attached as an appendix to this opinion.
12
the court continued, Heinz failed to cite any evidence in the
administrative record demonstrating Anthem violated that
requirement. Specifically, there was no evidence Anthem had
determined a UCR rate for services rendered in the applicable
market but chose to disregard it or breached an agreement with
Dr. Walker to pay a particular rate. Moreover, because the EOC
authorizes Anthem to determine an appropriate Allowable
Amount for out-of-network providers for nonemergency services
under these circumstances, absent evidence of bad faith, there is
no breach of the implied covenant of good faith and fair dealing.
Again, the court found, Heinz had failed to point to any evidence
in the record that would establish bad faith.
The court rejected Heinz’s final argument that CalPERS
breached its fiduciary duty to its members by giving Anthem
unlimited discretion to determine Allowable Amounts without
reaching the merits. This claim, the court explained, was not
part of the administrative appeal and not properly presented in
the writ proceeding. To the extent it is part of Heinz’s lawsuit,
the court concluded, it was stayed by the court’s earlier order.
Heinz sought immediate appellate review of the decision
denying his petition for writ of administrative mandamus by
filing a notice of appeal and a petition for writ of mandate. This
court dismissed the appeal as premature and summarily denied
the petition for writ of mandate.
7. The Order Sustaining the Demurrer to the First
Amended Complaint
After the court denied Heinz’s petition for writ of
administrative mandamus, CalPERS and Anthem demurred to
the remaining causes of action in the original complaint. Prior to
the hearing date, Heinz filed a first amended complaint, largely
13
reiterating the claims in his original complaint based on his
central allegation that CalPERS and Anthem inappropriately
reduced reimbursements for out-of-network nonemergency
services under the PPO coverages offered, while adding several
new legal theories to his pleading.10 The amended complaint
asserted claims covering the period from 2008 through 2014.
CalPERS and Anthem again demurred, arguing all of Heinz’s
claims were precluded by the now-final administrative decision
rejecting his requests for additional reimbursements and,
alternatively, were barred by the applicable statutes of
limitations and the Government Claims Act.11
10 In his first amended complaint Heinz alleged causes of
action against both CalPERS and Anthem labeled breach of
contract, breach of the implied covenant of good faith and fair
dealing, misrepresentation, unfair business practices, unjust
enrichment, violation of statutory duties and violation of due
process. Heinz asserted a cause of action for breach of fiduciary
duty against CalPERS and sought a traditional writ of mandate
pursuant to Code of Civil Procedure section 1085 to compel it to
perform its legal duties. He sought damages, equitable relief
(including an accounting) and attorney fees. Heinz deleted the
cause of action seeking a writ of administrative mandamus.
11 In addition to the three grounds for demurrer directed to
the entire first amended complaint, CalPERS demurred to the
cause of action for breach of fiduciary duty on the ground it has
immunity for the discretionary acts challenged by Heinz.
CalPERS and Anthem demurred to the cause of action for
misrepresentation as failing to meet applicable heightened
pleading requirements and to the cause of action for violation of
due process on the grounds there is no right to pursue a damage
claim for a due process violation in California and, in any event,
it was apparent from the face of the complaint that Heinz had
received all the process he was due.
14
The court sustained the demurrer to the first amended
complaint without leave to amend in a nine-page order filed
July 26, 2019. The court explained under Johnson v. City of
Loma Linda (2000) 24 Cal.4th 61, 76, adverse findings made in a
quasi-judicial administrative proceeding, unless set aside
through judicial review procedures (that is, by a petition for writ
of administrative mandamus), have binding effect on further
claims asserted by the plaintiff. Because Heinz did not prevail in
his writ petition, the court ruled, “the CalPERS board’s decision
is final and ‘has issue and claim preclusive effect,’” as to all of
Heinz’s remaining causes of action. The court rejected Heinz’s
argument his first amended complaint alleged causes of action
that arose from facts and law different from those adjudicated by
CalPERS, reasoning the allegations in the first amended
complaint “are the same allegations that were at issue in the
administrative proceeding and in Plaintiff’s petition for writ of
mandate.” The court provided as an example Heinz’s claims for
breach of contract and breach of the implied covenant of good
faith and fair dealing based on Anthem’s inadequate
reimbursement for out-of-network services.
The court alternatively ruled, even if Heinz could show that
the issues raised in his remaining causes of action were separate
from the issues raised during the administrative proceeding, all
the remaining causes of action would be barred by the applicable
three- or four-year statutes of limitations because Heinz alleged
CalPERS and Anthem failed to properly reimburse him in 2008
and 2009 but did not file his complaint until 2017. The court
noted Judge Wiley’s earlier tentative ruling on equitable tolling
but, citing the reporter’s transcript from the May 7, 2018 hearing,
stated the issue had expressly been left open for further
15
consideration. The court then ruled equitable tolling did not
apply. To establish equitable tolling, the court explained, the
plaintiff must demonstrate timely notice to the defendant in
filing the first claim, as well as lack of prejudice to the defendant
in gathering evidence to defend against the second claim and
good faith and reasonable conduct by the plaintiff in filing the
second claim. While Heinz’s administrative action provided
timely notice to CalPERS and Anthem of all claims or issues
raised in that action, the court ruled, to the extent his
first amended complaint asserted claims not raised in the
administrative proceedings, he did not provide timely notice.
Judgment in favor of CalPERS and Anthem was entered on
August 23, 2019. Heinz filed a premature notice of appeal on
August 21, 2019 from the court’s nonappealable July 26, 2019
order sustaining the demurrer without leave to amend (see Vibert
v. Berger (1966) 64 Cal.2d 65, 67), which we treat as timely
pursuant to California Rules of Court, rule 8.104(d)(2).
DISCUSSION
1. Standard of Review
a. Petition for writ of administrative mandamus
Code of Civil Procedure section 1094.5,12 the administrative
mandamus statute, provides for judicial review of administrative
orders or decisions. (Topanga Assn. for a Scenic Community v.
County of Los Angeles (1974) 11 Cal.3d 506, 514.) The question
presented by a petition for writ of administrative mandate is
whether the agency or tribunal that issued the decision being
challenged “proceeded without, or in excess of, jurisdiction;
12 Statutory references are to this code unless otherwise
stated.
16
whether there was a fair trial; and whether there was any
prejudicial abuse of discretion.” (§ 1094.5, subd. (b).) “Abuse of
discretion is established if the respondent has not proceeded in
the manner required by law, the order or decision is not
supported by the findings, or the findings are not supported by
the evidence.” (Ibid.)
On appeal from the judgment on a petition for writ of
administrative mandate in a case not involving fundamental
vested rights, as here, we review the agency’s findings, not the
superior court’s decision, for substantial evidence. (Doe v.
University of Southern California (2018) 28 Cal.App.5th 26, 34;
Benetatos v. City of Los Angeles (2015) 235 Cal.App.4th 1270,
1281; see § 1094.5, subd. (c) [“abuse of discretion is established if
the court determines that the findings are not supported by
substantial evidence in the light of the whole record”].) The
petitioner in the administrative mandamus proceeding “has the
burden of proving that the agency’s decision was invalid and
should be set aside, because it is presumed that the agency
regularly performed its official duty.” (Desmond v. County of
Contra Costa (1993) 21 Cal.App.4th 330, 335.)
As all parties agree, absent any conflict in extrinsic
evidence, we review de novo issues regarding the proper
interpretation of a contract, here the EOC. (See City of Hope
National Medical Center v. Genentech, Inc. (2008) 43 Cal.4th 375,
395; Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439
[“[i]t is solely a judicial function to interpret a written contract
unless the interpretation turns upon the credibility of extrinsic
evidence, even when conflicting inferences may be drawn from
uncontroverted evidence”]; Hanna v. Mercedes-Benz USA, LLC
(2019) 36 Cal.App.5th 493, 507 [“in the absence of any conflict in
17
extrinsic evidence presented to clarify an ambiguity,” written
agreements are interpreted de novo]; see also Chaplin v. State
Personnel Board (2020) 54 Cal.App.5th 1104, 1114 [“[w]hen an
‘appeal from the administrative mandamus proceeding presents
questions of law, our review is de novo’”].)
b. Demurrer
“In reviewing an order sustaining a demurrer, we examine
the operative complaint de novo to determine whether it alleges
facts sufficient to state a cause of action under any legal theory.”
(T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145,
162.) “In making this determination, we must accept the facts
pleaded as true and give the complaint a reasonable
interpretation.” (Mathews v. Becerra (2019) 8 Cal.5th 756, 762;
accord, Summer J. v. United States Baseball Federation (2020)
45 Cal.App.5th 261, 268.)
2. The Superior Court Properly Denied the Petition for Writ
of Administrative Mandamus
The sole issue pursued by Heinz through the full Anthem
and CalPERS administrative grievance and appeal process was
whether Anthem had complied with the terms of the applicable
EOC when reimbursing Heinz for his 2008 and 2009 out-of-
network treatment by Dr. Walker. That question, in turn,
depends on the proper interpretation of the term “Allowable
Amount” as applied to out-of-network providers of nonemergency
services.
The text of the EOC’s (identical for Heinz’s 2008 PERSCare
and 2009 PERS Choice plans) is unambiguous. (See Civ. Code,
§ 1638 [“[t]he language of a contract is to govern its
interpretation, if the language is clear and explicit, and does not
involve an absurdity”].) For covered services performed by out-of-
18
network physicians or other health care providers,
reimbursement is 60 percent of the Allowable Amount, which is
defined for nonpreferred providers as either the UCR rate
determined by Anthem for the provider’s geographic area
(option 1) or, when no UCR rate has been determined, the
amount Anthem decides “is appropriate considering the
particular circumstances and services rendered” (option 3).13
Reasonably read, option 3 when applicable gives Anthem
discretion to set the Allowable Amount at whatever figure it
deems proper under the particular circumstances presented. (See
Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1264
[“[i]f contractual language is clear and explicit, it governs”];
accord, State of California v. Continental Ins. Co. (2012)
55 Cal.4th 186, 195.)14
Our colleagues in Division Two of this court reached the
same conclusion in Orthopedic Specialists, supra,
228 Cal.App.4th 644, in which an out-of-network medical
provider had contended Anthem and CalPERS were obligated to
pay it the UCR rate for nonemergency orthopedic services. The
court affirmed the trial court’s order dismissing the provider’s
lawsuit after sustaining a demurrer without leave to amend. As
the court explained (and the provider had acknowledged),
pursuant to governing regulations (Cal. Code Regs., tit. 28,
13 For preferred providers the Allowable Amount is the
contracted rate—that is, the amount that has been “agreed will
be accepted as payment for the service(s) rendered.”
14 Anthem will determine the Allowable Amount for certain
procedures to be performed by an out-of-network provider and
notify the plan member and his or her physician in advance of
treatment.
19
§ 1300.71, subd. (a)(3)(C)), payment for nonemergency services
provided by out-of-network providers to PPO enrollees is “‘the
amount set forth in the enrollee’s Evidence of Coverage.’” (See
Orthopedic Specialists, at p. 648.) Turning to the EOC at issue
(the PERS Choice EOC), the court held it “clearly states that an
out-of-network provider will be paid 60 percent of the Allowable
Amount, which is broadly defined as the amount Anthem ‘has
determined is an appropriate payment’ for the services rendered.”
(Ibid.) In response to the argument the option 3 contract
language essentially allowed Anthem to pay out-of-network
providers whatever it deemed proper, without restriction, the
court responded, “[I]t is correct that the EOC allows Anthem
itself to determine what is an appropriate amount to pay an out-
of-network provider for nonemergency services. But just because
[the provider] believes that the EOC’s provisions are unfair does
not mean the provisions can be ignored or that they are
unenforceable. The contract says what it says.” (Ibid.)15
Heinz urges us not to follow Orthopedic Specialists,
arguing, unlike the provider in that case, he is seeking a greater
reimbursement based on the contract considered as a whole, not
the UCR rate considered in the abstract. He also suggests,
without further elaboration, his status as a CalPERS member
and, therefore, beneficiary of its fiduciary obligations, somehow
15 The court of appeal also rejected the provider’s argument
that, notwithstanding governing regulations and the EOC, an
implied promise existed it would be paid the UCR rate “because,
as the trial court correctly noted, an oral promise cannot be
enforced against a government agency, like CalPERS.”
(Orthopedic Specialists, supra, 228 Cal.App.4th at p. 649.)
20
impacts the issue of contract interpretation. Neither point is
persuasive.
Heinz’s contract-as-a-whole argument is premised on his
contention the EOC represented the Allowable Amount would be
the same for preferred and nonpreferred providers, with
reimbursement differing only as to the percentage that would be
applied to the common base amount. He relies primarily on the
payment example in the EOC, which, as discussed, used the same
Allowable Amount figure to illustrate the difference between
reimbursement for in-network and out-of-network providers.16
However, as the trial court emphasized in its ruling denying the
writ petition, the schedule specifically notes, “This is only an
example. Allowable amount varies according to procedure and
provider of service.” More significantly, in defining the Allowable
Amount, the payment example specifically directs the member to
“see definition on page 91”—the three-subpart definition of the
term we previously quoted. Far from creating a ground for
distinguishing Orthopedic Specialists, the payment example thus
reinforces that court’s reliance on the EOC’s definition of
Allowable Amount, and specifically the language of option 3, to
reject a claim for greater reimbursement for out-of-network
providers.
16 Heinz also points to other pages in the EOC’s summarizing
the plans and describing medical and hospital benefits that
explain various services will be reimbursed at 90 percent (for
2008 PERSCare) or 80 percent (for 2009 PERS Choice) when the
member sees a preferred provider but at 60 percent for
nonpreferred providers without disclosing there will be any
change or reduction in the Allowable Amount used to calculate
reimbursements. In fact, Allowable Amount is not mentioned at
all in those portions of the EOC’s.
21
Heinz also argues the three subparts of the Allowable
Amount definition should be construed to be substantially the
same: The contract rate (option 2) should be the same as, or at
least similar to, the usual market rate (option 1), which should be
the same or similar to the appropriate rate under the
circumstances for the service provider (option 3). It would be
unreasonable, Heinz contends, to interpret the third subpart, as
did the court of appeal in Orthopedic Specialist and the trial
court in the case at bar, to give Anthem and CalPERS the right to
determine the reimbursement without any reference to objective
standards.
Heinz’s argument is nonsensical. The purpose of a PPO
plan administrator negotiating rates for preferred providers is to
control (that is, to reduce) the cost of medical care. Necessarily
that means in virtually all instances the contracted rate will be
less than the UCR rate (and also less than the provider’s usual
billing rate). And the prerequisite for use of option 3 is that
Anthem has not determined a UCR rate for the nonpreferred
provider’s services, so there is no rate that is “the same or similar
as” to apply. His argument also runs afoul of the well-established
presumption against surplusage. (See Wind Dancer Production
Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 70; In re
Tobacco Cases I (2010) 186 Cal.App.4th 42, 49; see also Civ. Code,
§ 1641.)
Nor is there any support in the definition of Allowable
Amount (or elsewhere in the EOC) for Heinz’s additional
argument that use of the adjective “appropriate” in option 3 (“the
amount [Anthem] determines is appropriate”) required Anthem
to employ an independent and objective standard in setting the
Allowable Amount for Dr. Walker’s therapy sessions. In this
22
context, “appropriate” simply means suitable or right for the
occasion. (See, e.g., Merriam-Webster Dict. Online (2021)
[defining “appropriate” as “especially suitable or compatible:
FITTING”]) [as of Apr. 19, 2021],
archived at ; Cambridge Dict.
Online (2021) [defining “appropriate” as “suitable or right for a
particular situation or occasion”]
[as of Apr. 19, 2021], archived at ; see generally Civ. Code, § 1644 [“[t]he words of a
contract are to be understood in their ordinary and popular
sense, rather than according to their strict legal meaning; unless
used by the parties in a technical sense, or unless a special
meaning is given to them by usage, in which case the latter must
be followed”].) When setting the Allowable Amount under
option 3, Anthem was required to consider the particular
circumstances of the out-of-network services and provider, which
certainly could include looking at objective standards or criteria.
But it was not obligated to do so.
Of course, as Heinz argues, his EOC’s, like every contract,
included an implied covenant of good faith and fair dealing. (See
generally Kransco v. American Empire Surplus Lines Ins. Co.
(2000) 23 Cal.4th 390, 400 [every contract contains an implied
covenant of good faith and fair dealing that “‘neither party will do
anything which will injure the right of the other to receive the
benefits of the agreement’”].) The implied covenant “finds
particular application in situations where one party is invested
with a discretionary power affecting the rights of another. Such
power must be exercised in good faith.” (Carma Developers
23
(Cal.), Inc. v. Marathon Development California, Inc. (1992)
2 Cal.4th 342, 372 (Carma Developers); accord, Ladd v. Warner
Bros. Entertainment, Inc. (2010) 184 Cal.App.4th 1298, 1306-
1307.)
Although breach of a specific provision of the contract is not
a prerequisite to a claim of breach of the implied covenant of good
faith and fair dealing (Carma Developers, supra, 2 Cal.4th at
p. 373), such a claim “must show that the conduct of the
defendant, whether or not it also constitutes a breach of a
consensual contract term, demonstrates a failure or refusal to
discharge contractual responsibilities, prompted not by an honest
mistake, bad judgment or negligence but rather by a conscious
and deliberate act, which unfairly frustrates the agreed common
purposes and disappoints the reasonable expectations of the
other party thereby depriving that party of the benefits of the
agreement.” (Careau & Co. v. Security Pacific Business Credit,
Inc. (1990) 222 Cal.App.3d 1371, 1395; accord, Mosely v. Pacific
Specialty Ins. Co. (2020) 49 Cal.App.5th 417, 436; Nieto v. Blue
Shield of California Life & Health Ins. Co. (2010)
181 Cal.App.4th 60, 86; Chateau Chamberay Homeowners Assn.
v. Associated Internat. Ins. Co. (2001) 90 Cal.App.4th 335, 346.)
As the superior court explained in ruling Heinz had not
established grounds for issuance of a writ of mandate, Heinz
failed to cite any evidence in the administrative record that
Anthem had acted in bad faith in setting an Allowable Amount
for Dr. Walker as an out-of-network provider that was lower than
his in-network contract rate had been. To the contrary, doing so
was consistent with Anthem and CalPERS’s clearly stated goal of
providing members insurance coverage for healthcare services
24
while controlling the overall costs of the program. Heinz’s
briefing on appeal does not remedy that fatal deficiency.17
3. The Superior Court Did Not Abuse Its Discretion in
Denying the Motion To Augment the Administrative
Record
In the superior court Heinz sought to augment the
administrative record with portions of the contract between
Anthem and CalPERS, discovered by Heinz after the
administrative process had been completed and his lawsuit filed,
that detailed financial incentives provided by CalPERS to
Anthem to control costs in administering the PPO programs. As
17 In support of his petition for a writ of administrative
mandamus in the superior court, Heinz asserted Anthem had
breached the terms of the 2008 and 2009 EOC’s, not that the
relevant portions of the EOC’s were unenforceable. Accordingly,
his arguments that a provision in an insurance policy that takes
away or limits coverage reasonably expected by the insured must
be “conspicuous, plain and clear” to be enforceable; the third
subpart of the Allowable Amount definition, as interpreted by
Anthem, is unconscionable; and the discretion given to Anthem to
set the Allowable Amount for nonpreferred providers at whatever
level it deems proper makes its promise to reimburse for out-of-
network services illusory; as well as his claim the EOC’s
provisions for out-of-network reimbursement violate various
statutes and regulations, are not properly presented on appeal
from the superior court’s denial of his petition. (See Johnson v.
Greenelsh (2009) 47 Cal.4th 598, 603 [“‘issues not raised in the
trial court cannot be raised for the first time on appeal’”];
Krechuniak v. Noorzoy (2017) 11 Cal.App.5th 713, 750 [“the
general rule” that a party may not raise a new theory on appeal
“is especially true when the theory newly presented involves
controverted questions of fact or mixed questions of law and
fact”].)
25
discussed, the superior court denied the motion, ruling the
material was not relevant.
“‘The general rule is that a hearing on a writ of
administrative mandamus is conducted solely on the record of the
proceeding before the administrative agency. [Citation.]’
[Citation.] Augmentation of the administrative record is
permitted only within the strict limits set forth in section 1094.5,
subdivision (e).” (Pomona Valley Hospital Medical Center v.
Superior Court (1997) 55 Cal.App.4th 93, 101; accord, Smith v.
Selma Community Hospital (2008) 164 Cal.App.4th 1478, 1520.)
Section 1094.5, subdivision (e), provides, “Where the court finds
that there is relevant evidence that, in the exercise of reasonable
diligence, could not have been produced or that was improperly
excluded at the hearing before respondent, . . . in cases in which
the court is authorized by law to exercise its independent
judgment on the evidence, the court may admit the evidence at
the hearing on the writ without remanding the case.”
“Determination of the question of whether one of the exceptions
[identified in section 1094.5, subdivision (e)], applies is within the
discretion of the trial court, and the exercise of that discretion
will not be disturbed unless it is manifestly abused.” (Pomona
Valley Hospital Medical Center, at p. 101.)
The issue presented to the administrative law judge and
the CalPERS Board, and subsequently in Heinz’s section 1094.5
writ petition, was whether Anthem had breached the terms of the
governing EOC’s by improperly determining the Allowable
Amount for Dr. Walker’s out-of-network services and, as a result,
incorrectly calculated the reimbursements due Heinz. It was well
within the trial court’s broad discretion to conclude any economic
incentive Anthem might have to reduce overall costs in the PPO
26
plans it administered for CalPERS was not relevant to the court’s
determination of those limited questions of contract
interpretation and compliance. (See McCoy v. Pacific Maritime
Assn. (2013) 216 Cal.App.4th 283, 295-296 [trial court’s discretion
“is particularly broad ‘with respect to rulings that turn on the
relevance of the proffered evidence’”]; Shaw v. County of
Santa Cruz (2008) 170 Cal.App.4th 229, 281 [same].)
4. The Trial Court Erred in Sustaining the Demurrer to All
Causes of Action in the First Amended Complaint
a. The preclusive effect of the administrative findings
i. Claim preclusion
“Generally speaking, if a complainant fails to overturn an
adverse administrative decision by writ of mandate, ‘and if the
administrative proceeding possessed the requisite judicial
character [citation], the administrative decision is binding in a
later civil action brought in superior court.’” (Runyon v. Board of
Trustees of California State University (2010) 48 Cal.4th 760,
773.) The binding nature of a final administrative decision is
typically understood as referring to the doctrine of issue
preclusion (see, e.g., Murray v. Alaska Airlines, Inc. (2010)
50 Cal.4th 860, 867), although some courts of appeal have
referred more broadly to both the “issue and claim preclusive
effect” or “res judicata” effect of such an adverse decision.
(E.g., Page v. County of Los Angeles County Probation Dept.
(2004) 123 Cal.App.4th 1135, 1142; Patrick Media Group v.
California Coastal Com. (1992) 9 Cal.App.4th 592, 617.)
Here, the trial court ruled all causes of action asserted by
Heinz in his first amended complaint were barred by claim
preclusion. That was error for two independent reasons. First,
an essential element for application of the doctrine of claim
27
preclusion is that there was a final judgment on the merits in a
prior proceeding: “Claim preclusion arises if a second suit
involves (1) the same cause of action (2) between the same parties
(3) after a final judgment on the merits in the first suit.” (DKN
Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824; see Slater v.
Blackwood (1975) 15 Cal.3d 791, 795 [“[a] valid final judgment on
the merits in favor of a defendant serves as a complete bar to
further litigation on the same cause of action”].) Under
California law a “trial court judgment has no preclusive effect
until the appellate process is complete.” (Samara v. Matar (2018)
5 Cal.5th 322, 335; see Agarwal v. Johnson (1979) 25 Cal.3d 932,
954; Favila v. Katten Muchin Rosenman LLP (2010)
188 Cal.App.4th 189, 223 [entry of a final judgment in the prior
action is an essential element for application of the doctrine of
claim preclusion].)
In Page v. Los Angeles County Probation Dept., supra,
123 Cal.App.4th 1135, relied upon by the trial court, and the
cases cited by CalPERS and Anthem in support of the court’s
ruling on claim preclusion, either no writ of administrative
mandamus had been sought by the party filing the civil lawsuit
or its petition for writ of administrative mandamus had been
decided and all appeals of the adverse decision exhausted. In this
case, in contrast, when the trial court ruled claim preclusion
barred Heinz’s first amended complaint in its entirety, the
appellate process for reviewing the CalPERS administrative
decision was far from complete; and claim preclusion could not
yet be applied. (Sandoval v. Superior Court (1983)
140 Cal.App.3d 932, 936 [“California law is settled that pending
appeal a trial court judgment is not final and will not be given
res judicata effect”]; see Samara v. Matar, supra, 5 Cal.5th at
28
p. 333 [“[t]he availability of a direct appeal reflects a sensible
determination that the process culminating in a trial court’s
disputed decision is not sufficient to resolve litigation
conclusively”]; Franklin & Franklin v. 7-Eleven Owners for Fair
Franchising (2000) 85 Cal.App.4th 1168, 1174 [“in California the
rule is that the finality required to invoke the preclusive bar of
res judicata is not achieved until an appeal from the trial court
judgment has been exhausted or the time to appeal has expired”];
see generally § 1049 [“[a]n action is deemed to be pending from
the time of its commencement until its final determination upon
appeal, or until the time for appeal has passed, unless the
judgment is sooner satisfied”].)
Second, even when the doctrine of claim preclusion
properly applies, it only “prevents relitigation of the same cause
of action in a second suit between the same parties or parties in
privity with them.” (Mycogen Corp. v. Monsanto Co. (2002)
28 Cal.4th 888, 896.) For this purpose, California law identifies a
single cause of action as “the violation of a single primary right.”
(Crowley v. Katleman (1994) 8 Cal.4th 666, 681; see Boeken v.
Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797 [“[t]o
determine whether two proceedings involve identical causes of
action for purposes of claim preclusion, California courts have
‘consistently applied the “primary rights” theory’”]; Slater v.
Blackwood, supra, 15 Cal.3d at p. 795 [“California has
consistently applied the ‘primary rights’ theory, under which the
invasion of one primary right gives rise to a single cause of
action”].)18 The primary right theory provides “a ‘cause of action’
18 As CalPERS and Anthem observe in their respondents’
brief, it is generally true that “a prior judgment between the
same parties ‘is res judicata on matters which were raised or
29
is comprised of a ‘primary right’ of the plaintiff, a corresponding
‘primary duty’ of the defendant, and a wrongful act by the
defendant constituting a breach of that duty. [Citation.] The
most salient characteristic of a primary right is that it is
indivisible: the violation of a single primary right gives rise to but
a single cause of action.” (Crowley, at p. 681.)
As the Supreme Court has recognized, “the primary right
theory is notoriously uncertain in application.” (Baral v. Schnitt
(2016) 1 Cal.5th 376, 395.) That said, the rights Heinz seeks to
vindicate in his claims for breach of fiduciary duty, fraud, breach
of regulatory obligations and unfair business practices, as well as
the wrongful acts he alleges as the bases for those claims, are
unquestionably different from the primary right at stake in his
straightforward breach of contract action asserting Anthem
could have been raised, on matters litigated or litigable.’” (Kim v.
Reins International California, Inc. (2020) 9 Cal.5th 73, 92-93;
accord, Aerojet-General Corp. v. American Excess Ins. Co. (2002)
97 Cal.App.4th 387, 402.) However, the doctrine of claim
preclusion is focused on splitting a single cause of action or
relitigation of the same cause of action on a different legal theory
or for different relief: That a plaintiff could have asserted a claim
in a prior proceeding under liberal pleading rules for permissive
joinder does not necessarily trigger claim preclusion. If a
defendant’s conduct violated multiple primary rights, it is not
prohibited splitting of a cause of action to bring separate actions
to recover for the violation of each primary right. (See Mycogen
Corp. v. Monsanto Co., supra, 28 Cal.4th at p. 897; Fujifilm Corp.
v. Yang (2014) 223 Cal.App.4th 326, 333-334.) “[A] given set of
facts may give rise to the violation of more than one ‘primary
right,’ thus giving a plaintiff the potential of two separate
lawsuits against a single defendant.” (Sawyer v. First Financial
Corp. (1981) 124 Cal.App.3d 390, 399.)
30
misapplied the Allowable Amount provision of the 2008 and 2009
EOC’s. (See, e.g., Sawyer v. First Financial Corp. (1981)
124 Cal.App.3d 390, 402-403 [second lawsuit alleging fraud and
first lawsuit alleging breach of contract involved distinct primary
rights; “[s]urely one’s breach of contract by failing to pay a note
violates a ‘primary right’ which is separate from the ‘primary
right’ not to have the note stolen,” even though “the monetary
loss may be measurable by the same promissory note amount,
and hence in a general sense the same ‘harm’ has been done in
both cases”]; see also Fujifilm Corp. v. Yang (2014)
223 Cal.App.4th 326, 332 [breach of contract and fraudulent
transfer causes of action involve different primary rights];
Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc. (1994)
29 Cal.App.4th 1828, 1837 [right to have contractual obligations
performed is distinct from the right to be free from tortious
behavior preventing collection of a judgment].)19
19 Even if Heinz’s fraud and breach of fiduciary duty claims
were considered to seek redress for the same primary right as his
breach of contract cause of action, “[a]n important exception to
the general rule of indivisibility of a primary right permits a
second action on a different legal theory if the plaintiff was
precluded from asserting that theory in the first action because of
limitations on the subject matter jurisdiction of the first forum.”
(Le Parc Community Assn. v. Workers’ Comp. Appeals Bd. (2003)
110 Cal.App.4th 1161, 1170.) Heinz’s attempt to assert these
claims in the administrative proceedings was rejected. If that
rejection was based on jurisdictional limitations, rather than
timeliness, claim preclusion would not bar their litigation in
superior court for this reason, as well.
31
ii. Issue preclusion
Like the doctrine of claim preclusion, the doctrine of issue
preclusion generally applies only after a final adjudication. (See,
e.g., Samara v. Matar, supra, 5 Cal.5th at p. 327; DKN Holdings
LLC v. Faerber, supra, 61 Cal.4th at p. 825.) In considering the
decision of a judicial or quasi-judicial administrative body in a
lawsuit that combines a petition for writ of administrative
mandamus with additional claims, as here, however, once the
superior court has denied the petition seeking to overturn the
agency’s decision, the court properly gives binding effect to the
adverse administrative findings in the pending action. (See
Johnson v. City of Loma Linda, supra, 24 Cal.4th at p. 76
[referring to “binding,” rather than “preclusive” effect of adverse
administrative finding that has not been set aside through
judicial review procedures]; see also Sabek, Inc. v. Engelhard
Corp. (1998) 65 Cal.App.4th 992, 998 [finality for purposes of
issue preclusion is not invariably the same as the finality
essential to claim preclusion]; Rest.2d Judgments, §§ 13, com. g
[“[i]n particular circumstances the wisest course is to regard the
prior decision of the issue as final for the purpose of issue
preclusion without awaiting the end judgment”], 27, com. k [“a
litigation may have reached a stage at which issue preclusion is
appropriate even though claim preclusion—application of the
rules of merger and bar—is not”]; cf. Raedeke v. Gibraltar Sav. &
Loan Assn. (1974) 10 Cal.3d 665, 671 [“in a case involving both
legal and equitable issues, the trial court may proceed to try the
equitable issues first, without a jury[;] . . . [and,] if the court’s
determination of those issues is also dispositive of the legal
issues, nothing further remains to be tried by a jury”]; Orange
County Water Dist. v. Alcoa Global Fasteners, Inc. (2017)
32
12 Cal.App.5th 252, 355 [same]; see generally Samara, at p. 336
[although the trial court’s prior finding does not yet satisfy the
requirements for issue or claim preclusion, “the court need not
forget or ignore the work it has already completed in this
litigation”; “it means only that a prior determination by itself
does not necessarily, as a matter of law, bind the future one”].)20
As the trial court ruled in its order denying the petition for
writ of administrative mandamus, Anthem complied with the
requirements of the EOC’s in determining the Allowable Amount
for reimbursement of Dr. Walker’s out-of-network nonemergency
services and Heinz failed to establish any breach of the implied
covenant of good faith and fair dealing. The court properly gave
binding effect to that determination and, accordingly, did not err
in sustaining the demurrer to Heinz’s causes of action for breach
of contract and breach of the implied covenant following that
ruling.21 The finding of no breach of contract encompassed by the
20 The trial court in Samara v. Matar, supra, 5 Cal.5th 322,
had granted summary judgment in favor of one defendant based
on the statute of limitations and lack of causation. Although both
grounds were challenged on appeal, the court of appeal affirmed
the judgment solely on the statute of limitations. The Supreme
Court held, because the issue of causation had not been decided
on appeal, the trial court’s decision on causation was not binding
as a matter of law on the second defendant in the litigation. (Id.
at p. 334.)
21 The trial court’s denial of Heinz’s petition for writ of
administrative mandamus also precludes his cause of action
alleging violations of his right to due process. Any claim the
administrative review process deprived Heinz of a fair hearing
should have been presented in the first instance in Heinz’s writ
petition. (See Conlan v. Bontá (2002) 102 Cal.App.4th 745, 751-
752 [administrative mandamus under section 1094.5 is the
33
order denying the writ petition, however, does not preclude the
other causes of action alleged in Heinz’s first amended complaint
as a matter of law.
b. Equitable estoppel
“The equitable tolling of statutes of limitations is a
judicially created, nonstatutory doctrine. [Citations.] It is
‘designed to prevent unjust and technical forfeitures of the right
to a trial on the merits when the purpose of the statute of
limitations—timely notice to the defendant of the plaintiff’s
claims—has been satisfied.’ [Citation.] Where applicable, the
doctrine will ‘suspend or extend a statute of limitations as
necessary to ensure fundamental practicality and fairness.’”
(McDonald v. Antelope Valley Community College Dist. (2008)
45 Cal.4th 88, 99 (McDonald); accord, Saint Francis Memorial
Hospital v. State Dept. of Public Health (2020) 9 Cal.5th 710,
719.) “[T]he effect of equitable tolling is that the limitations
period stops running during the tolling event, and begins to run
again only when the tolling event has concluded. As a
consequence, the tolled interval, no matter when it took place, is
tacked onto the end of the limitations period, thus extending the
deadline for suit by the entire length of time during which the
appropriate method to inquire into the conduct or result of an
administrative proceeding]; Clark v. City of Hermosa Beach
(1996) 48 Cal.App.4th 1152, 1169 [section 1094.5, subdivision (b),
authorizes the issuance of a writ of administrative mandate
where the agency deprived the petitioner of a fair hearing].)
None was, and any claim has been forfeited. (See Quiles v.
Parent (2018) 28 Cal.App.5th 1000, 1013; Bank of America, N.A.
v. Roberts (2013) 217 Cal.App.4th 1386, 1398-1399.)
34
tolling event previously occurred.” (Lantzy v. Centex Homes
(2003) 31 Cal.4th 363, 370-371.)
“Broadly speaking, the doctrine applies ‘“[w]hen an injured
person has several legal remedies and, reasonably and in good
faith, pursues one.’” [Citations.] Thus, it may apply where one
action stands to lessen the harm that is the subject of a potential
second action; where administrative remedies must be exhausted
before a second action can proceed; or where a first action,
embarked upon in good faith, is found to be defective for some
reason.” (McDonald, supra, 45 Cal.4th at p. 100.) “[E]quitable
tolling today applies when three ‘elements’ are present:
‘[(1)] timely notice, and [(2)] lack of prejudice, to the defendant,
and [(3)] reasonable and good faith conduct on the part of the
plaintiff.’ [Citation.] These requirements are designed to
‘balanc[e] . . . the injustice to the plaintiff occasioned by the bar of
his claim against the effect upon the important public interest or
policy expressed by the [operative] limitations statute.’” (Saint
Francis Memorial Hospital v. State Dept. of Public Health, supra,
9 Cal.5th at pp. 724-725; accord, Tarkington v. California
Unemployment Ins. Appeals Bd. (2009) 172 Cal.App.4th 1494,
1503; see McDonald, at p. 102.)
35
The trial court ruled Heinz provided timely notice for
purposes of equitable tolling as to all claims or issues raised in
the administrative action.22 We agree. However, because it ruled
(erroneously, as we have explained) that claim and issue
preclusion barred all causes of action in the first amended
complaint, the court did not address which of Heinz’s causes of
action were based on claims presented in the administrative
proceedings and entitled to the benefit of equitable tolling.
As the court noted, Heinz’s causes of action are subject to
either three- or four-year statutes of limitations.23 The CalPERS
Board adopted the administrative law judge’s proposed decision
on March 20, 2017. The order denying Heinz’s petition for
reconsideration was filed May 22, 2017. Heinz filed his original
complaint on June 13, 2017—three weeks after the denial of the
22 Judge Wiley made clear on the record his ruling on
equitable tolling was preliminary; Judge Hogue was entitled to
address the issue when ruling on the demurrer.
23 The causes of action for misrepresentation and violation of
statutory obligations are subject to three-year statutes of
limitations (Code Civ. Proc., § 338, subds. (a) & (d)); the cause of
action for unfair business practices to a four-year limitations
period (Bus. & Prof. Code, § 17208). The statute of limitations for
breach of fiduciary duty is three years or four years, depending
on whether the breach is fraudulent or nonfraudulent. (American
Master Lease LLC v. Idanta Partners, Ltd. (2014)
225 Cal.App.4th 1451, 1479; see Fuller v. First Franklin
Financial Corp. (2013) 216 Cal.App.4th 955, 963 [“limitations
period is three years . . . for a cause of action for breach of
fiduciary duty where the gravamen of the claim is deceit, rather
than the catchall four-year limitations period that would
otherwise apply”].)
36
petition for reconsideration.24 Assuming Heinz’s various causes
of action accrued no earlier than September 2008 when he first
became aware of the level of reimbursement for Dr. Walker as a
nonpreferred provider, and applying the shorter three-year
statute of limitations, any cause of action based on claims raised
in the administrative action by July 2011—two years 11 months
later—would be subject to equitable tolling and presumptively
timely filed, at least for purposes of a viable pleading. (See
Ivanoff v. Bank of America, N.A. (2017) 9 Cal.App.5th 719, 726
[“‘a demurrer based on an affirmative defense will be sustained
only where the face of the complaint discloses that the action is
necessarily barred by the defense’”]; Casterson v. Superior Court
(2002) 101 Cal.App.4th 177, 183 [same].)
In his June 15, 2009 appeal of Anthem’s denial of his
claims, Heinz asserted Anthem and CalPERS had
misrepresented how reimbursement for nonemergency out-of-
network services would be determined. In his first amended
appeal letter, dated April 4, 2011, Heinz attempted to add claims
of breach of fiduciary duty and breach of statutory (regulatory)
obligations to the existing appeal. If equitable tolling began on
those dates, Heinz’s causes of action for misrepresentation,
breach of fiduciary duty and breach of statutory and regulatory
duties, as well as his causes of action for a traditional writ of
mandate and unfair business practices to the extent those are
based on the conduct underlying the other claims, were
sufficiently pleaded to survive a demurrer.25
24 All of these dates are detailed in the first amended
complaint.
25 CalPERS and Anthem do not argue on appeal they were
prejudiced by Heinz’s delay in asserting his individual claims or
37
To be sure, CalPERS determined Heinz’s fraud, breach of
fiduciary duty and statutory violation claims were not properly
determined in the administrative proceedings.26 But pursuit of a
viable remedy is not required: “[E]ven in cases where a party
seeking tolling pursued an alternative remedy, [the Supreme
Court has] concluded that pursuit of a remedy ‘embarked upon in
good faith, [yet] found to be defective for some reason,’ doesn’t
foreclose a statute of limitations from being tolled.” (Saint
Francis Memorial Hospital v. State Dept. of Public Health, supra,
9 Cal.5th at p. 725.) At this preliminary stage of the case, it
cannot be said as a matter of law that CalPERS and Anthem did
not have timely notice of Heinz’s intention to pursue those issues
if the administrative appeal process did not resolve his claims in
a satisfactory manner or that they were prejudiced in their
ability to gather evidence to defend against those claims.
Nothing more is required to defeat the demurrer on this ground.
(See id. at p. 726 [“[w]hen considering whether a plaintiff
provided timely notice, courts focus on whether the party’s
actions caused the defendant to be ‘fully notified within the
that he did not act reasonably and in good faith with respect to
bringing them. Their argument that, even if some of Heinz’s
individual claims may be subject to equitable tolling, it would be
prejudicial to permit him to pursue those claims on behalf of a
class of plan members was not made in their demurrer and is not
properly before us.
26 CalPERS and Anthem did not demur to any cause of action
in the first amended complaint on the ground Heinz had failed to
exhaust his administrative remedies.
38
[statute of limitations] of plaintiffs’ claims and their intent to
litigate’”].)27
c. CalPERS’s remaining arguments
In its demurrer CalPERS argued Heinz’s failure to timely
file under the Government Claims Act precluded his causes of
action against it and it was entitled to governmental immunity
with respect to his breach of fiduciary duty claim because
negotiation of the terms of the EOC’s with Anthem was
discretionary activity within the meaning of Government Code
sections 815.2, subdivision (b), and 820.2.28 The trial court did
27 Although the demurrer should have been overruled as to
Heinz’s causes of action for misrepresentation, breach of fiduciary
duty, breach of regulatory duties, traditional writ of mandate and
unfair business practices, in the context of this case, unjust
enrichment (Heinz’s third cause of action) and equitable relief
(his 11th cause of action) are not properly pleaded as separate
causes of action, rather than as remedies for other alleged
unlawful acts. (See, e.g., McBride v. Boughton (2004)
123 Cal.App.4th 379, 388 [construing “purported cause of action
for unjust enrichment as an attempt to plead a cause of action
giving rise to a right to restitution”; “[t]here are several potential
bases for a cause of action seeking restitution,” including “where
the defendant obtained a benefit from the plaintiff by fraud,
duress, conversion, or similar conduct”].) Similarly,
unconscionability (the 10th cause of action) is not a cause of
action. (Cf. De La Torre v. CashCall, Inc. (2018) 5 Cal.5th 966,
980 [Business & Professions Code section 17200 provides
mechanism for policing unconscionable loan practices].)
28 Government Code section 820.2 states, “Except as
otherwise provided by statute, a public employee is not liable for
an injury resulting from his act or omission where the act or
omission was the result of the exercise of the discretion vested in
him, whether or not such discretion be abused.” Government
39
not address either of those defenses in sustaining the demurrer
without leave to amend.
In light of our decision on equitable estoppel, it is
appropriate for the superior court to expressly rule in the first
instance on Heinz’s first amended petition for an order relieving
petitioner from the provisions of Government Code section 945.5,
thereby determining whether a timely claim under the
Government Claims Act was required for the surviving causes of
action; if so, whether Heinz satisfied that requirement; and, if
not, whether his failure to timely file is excused on any of the
grounds set forth in his petition.
As for CalPERS’s immunity defense to the cause of action
for breach of fiduciary duty, as CalPERS contends, the provisions
in the PPO plans authorizing Anthem to pay reduced levels of
reimbursement for out-of-network providers are designed to
encourage use of preferred providers, thereby permitting
CalPERS to better control healthcare costs for its members (see
Orthopedic Specialists, supra, 228 Cal.App.4th at p. 648)—a basic
policy decision subject to governmental immunity. (See Johnson
v. State of California (1968) 69 Cal.2d 782, 796.)29 However,
Code section 815.2, subdivision (b), extends that discretionary act
immunity to the public entity whose employee’s conduct is at
issue: “Except as otherwise provided by statute, a public entity is
not liable for an injury resulting from an act or omission of an
employee of the public entity where the employee is immune from
liability.”
29 The Supreme Court in Johnson held Government Code
section 820.2 provides immunity for “basic policy decisions,” but
not “for the ministerial implementation of that basic policy.”
(Johnson v. State of California, supra, 69 Cal.2d at p. 796.) The
Court explained this distinction might also be characterized as
40
although far from a model of pleading, Heinz’s first amended
complaint also alleges that CalPERS breached its fiduciary duty
to its members by failing to adequately oversee Anthem’s
administration of the PPO’s—the ministerial implementation of a
basic policy not subject to governmental immunity. (Ibid.) Those
allegations are sufficient to defeat CalPERS’s demurrer on this
ground.
“between the ‘planning’ and ‘operational’ levels of decision-
making.” (Id. at p. 794.) It noted “[a]ny wider judicial review . . .
would place the court in the unseemly position of determining the
propriety of decisions expressly entrusted to a coordinate branch
of government.” (Id. at p. 793.) Using this analysis the Court
held the decision to place a youth with homicidal tendencies who
was on parole in Mrs. Johnson’s foster home was a “basic policy
decision,” but the decision whether to warn her of his violent
propensities was ministerial. (Id. at p. 796.) “[A]lthough a basic
policy decision (such as standards for parole) may be
discretionary and hence warrant governmental immunity,
subsequent ministerial actions in the implementation of that
basic decision still must face case-by-case adjudication on the
question of negligence.” (Id. at p. 797.)
41
DISPOSITION
The judgment of dismissal is reversed. The order denying
the petition for writ of administrative mandamus is affirmed. On
remand the trial court is directed to enter a new order overruling
CalPERS and Anthem’s demurrer to the causes of action for
breach of fiduciary duty (second cause of action),
misrepresentation (fourth cause of action), traditional writ of
mandate (fifth cause of action), unfair business practices (sixth
cause of action) and breach of statutory duties (eighth cause of
action) and sustaining the demurrer to all other causes of action
without leave to amend. The parties are to bear their own costs
on appeal.
PERLUSS, P. J.
We concur:
FEUER, J.
McCORMICK, J.*
* Judge of the Orange County Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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