Title: Natarajan v. Dignity Health

State: california

Issuer: California Supreme Court

Document:

IN THE SUPREME COURT OF 
CALIFORNIA 
 
SUNDAR NATARAJAN, 
Plaintiff and Appellant, 
v. 
DIGNITY HEALTH, 
Defendant and Respondent. 
 
S259364 
 
Third Appellate District 
C085906 
 
San Joaquin County Superior Court 
STK-CV-UWM-2016-4821 
 
 
August 12, 2021 
 
Justice Kruger authored the opinion of the Court, in which Chief 
Justice Cantil-Sakauye and Justices Corrigan, Liu, Cuéllar, 
Groban, and Jenkins concurred. 
 
 
1 
 
NATARAJAN v. DIGNITY HEALTH 
S259364 
 
Opinion of the Court by Kruger, J. 
 
Under California’s peer review statute, a hospital must 
afford a  physician a fair hearing before revoking the physician’s 
staff privileges.  (Bus. & Prof. Code, § 809 et seq.)  A panel of the 
physician’s peers generally serves as the trier of fact at these 
proceedings.  Proceedings before a peer review panel may be 
conducted by a hearing officer who makes evidentiary and 
procedural rulings, but who may not vote on the merits.  To 
ensure impartiality, the statute provides that neither panel 
members nor hearing officers may gain a “direct financial 
benefit from the outcome.”  (Bus. & Prof. Code, § 809.2, subds. 
(a) & (b).)   
The question in this case is whether a person hired by a 
hospital to serve as a hearing officer may be disqualified for 
financial bias under Business and Professions Code section 
809.2, subdivision (b), on grounds that the officer has an 
incentive to favor the hospital in order to increase the chances 
of receiving future appointments.  The Court of Appeal in this 
case answered no.  We reach a different conclusion.  While a 
hearing officer’s interest in future employment is not 
automatically disqualifying, neither is it categorically beyond 
the reach of the statute.  In some cases, depending on the 
circumstances, the hearing officer’s financial interest in 
currying favor with the hiring entity may create an intolerable 
risk of bias requiring disqualification under the statute.  But 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
2 
 
because the record does not establish this is such a case, we 
affirm the judgment of the Court of Appeal. 
I. 
A. 
In California, hospitals are composed of an administrative 
governing body that oversees hospital operations and a medical 
staff that provides medical services and ensures its members 
provide adequate medical care to patients.  A physician who 
wishes to practice at a hospital must maintain staff privileges.  
The termination of staff privileges can significantly limit the 
physician’s ability to practice medicine.  For that reason, before 
staff privileges can be terminated, the physician must be 
afforded 
certain 
procedural 
protections, 
including 
the 
opportunity for review of the termination decision.  (El-Attar v. 
Hollywood Presbyterian Medical Center (2013) 56 Cal.4th 976 
(El-Attar); Cal. Code Regs., tit. 22, § 70703, subd. (a).) 
Hospital peer review originated as a purely voluntary 
process for handling recommendations to suspend or terminate 
physician staff privileges, but by now has become firmly 
embedded in California law.  For decades before the peer review 
statute was enacted in 1989, California courts had held that 
hospitals must provide certain protections to physicians facing 
the denial of staff privileges.  For private hospitals like 
St. Joseph’s Medical Center of Stockton, the obligation was 
rooted in the common law doctrine of fair procedure, which 
applies to the membership decisions of certain private 
organizations affecting the public interest.  (El-Attar, supra, 56 
Cal.4th at pp. 986–987, citing, inter alia, Anton v. San Antonio 
Community Hosp. (1977) 19 Cal.3d 802; see, e.g., Kaiser 
Foundation Hospitals v. Superior Court (2005) 128 Cal.App.4th 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
3 
 
85, 102; Applebaum v. Board of Directors (1980) 104 Cal.App.3d 
648, 657 (Applebaum).)  Fair procedure required hospitals to 
afford physicians certain fundamental procedural protections, 
including adequate notice and an opportunity to be heard before 
an impartial decision maker.  (El-Attar, at pp. 986–987; 
Applebaum, at p. 657.) 
When the Legislature enacted the peer review statute in 
1989, it both codified the peer review process and made peer 
review “part of a comprehensive statutory scheme for the 
licensure of California physicians.”  (Mileikowsky v. West Hills 
Hospital & Medical Center (2009) 45 Cal.4th 1259, 1267 
(Mileikowsky); see Bus. & Prof. Code, § 809 et seq.)  The two 
primary goals of the peer review statute are “to protect the 
health and welfare of the people of California by excluding 
through the peer review mechanism ‘those healing arts 
practitioners who provide substandard care or who engage in 
professional 
misconduct’ ” 
and 
“to 
protect 
competent 
practitioners from being barred from practice for arbitrary or 
discriminatory reasons.”  (Mileikowsky, at p. 1267.)   
The bulk of the peer review statute’s requirements are 
aimed at private hospitals, like the hospital at issue in this case.  
(See Bus. & Prof. Code, § 809.7.)  Under these provisions, when 
the peer review body — often a hospital medical staff 
committee — recommends denying, revoking, or otherwise 
restricting a physician’s staff privileges for reasons of 
professional performance, the physician may request a hearing.  
(Id., § 809.1; see id., §§ 805, subd. (a)(1)(B)(i), 809, subd. (b) 
[defining “peer review body”].)  The hearing shall take place 
before a trier of fact who is either (1) an arbitrator or arbitrators 
selected through a mutually acceptable process, or (2) a panel of 
fellow practitioners including, where feasible, a member who 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
4 
 
practices the same specialty as the physician.  (Id., § 809.2, 
subd. (a) (section 809.2(a)).)   
When the hearing is held before a peer review panel, a 
hearing officer may be appointed to preside.  (Bus. & Prof. Code, 
§ 809.2, subd. (b) (section 809.2(b)).)  Unlike the members of the 
panel, the hearing officer need not be a medical practitioner; 
often the hearing officer is a lawyer.1  If a hearing officer is 
selected, the hearing officer is tasked with making procedural 
and evidentiary decisions, including ruling on requests for 
access to information, requests for continuances, and challenges 
to the impartiality of the panel members or hearing officer.  (Id., 
§ 809.2, subds. (c)–(h).)  The hearing officer may not, however, 
vote on the outcome; the ultimate decision is left exclusively to 
the panel.  (Id., §§ 809.2(b), 809.4, subd. (a)(1).)2   
The statute provides that hearing officers and panel 
members alike “shall gain no direct financial benefit from the 
outcome.”  (§ 809.2(a) & (b).)  The physician may question the 
panel members and hearing officer on voir dire, and has “the 
right to challenge the impartiality of any member or hearing 
officer.”  (Bus. & Prof. Code, § 809.2, subd. (c).)  The hearing 
 
1  
The California Medical Association model medical staff 
bylaws in fact require the hearing officer to be a lawyer.  
St. Joseph’s Medical Center of Stockton’s medical staff bylaws 
do not contain this particular requirement, but the hearing 
officer in this case was nonetheless a lawyer. 
2  
Additional protections may be required by individual 
hospitals.  Although the hearing at issue here was run pursuant 
to the hospital’s medical staff bylaws, the bylaws’ hearing officer 
requirements are similar to, and not inconsistent with, those of 
the peer review statute.  (See Bus. & Prof. Code, § 809.6, subd. 
(a).) 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
5 
 
officer, if one has been selected, is responsible for ruling on such 
challenges.  (Ibid.) 
B. 
St. Joseph’s Medical Center of Stockton is a private, self-
governing hospital owned by Dignity Health, a California-based 
health care organization.  In 2007, St. Joseph’s hired Sundar 
Natarajan, M.D., as director of its hospitalist program.  About 
two years later, Natarajan left this position and started his own 
hospitalist group that also operated out of St. Joseph’s.  
Beginning in 2011, the St. Joseph’s medical staff raised 
concerns about Natarajan’s hospitalist practice, including 
deficient recordkeeping, excessive length of patient stay, and 
misuse of consultants.  The medical staff repeatedly 
reprimanded and issued fines to Natarajan because of his 
recordkeeping deficiencies.  Although Natarajan acknowledged 
the problem, the recordkeeping issues persisted.  By August 
2013, the chair of the medical department notified Natarajan 
that a committee of physicians would launch an investigation 
into these alleged administrative deficiencies.  After the 
investigation, 
the 
committee 
recommended 
revoking 
Natarajan’s privileges.  The medical executive committee then 
reviewed 
the 
recommendation, 
considered 
Natarajan’s 
responsive presentation, and adopted the recommendation to 
terminate his medical staff membership and hospital privileges. 
Natarajan requested a peer review hearing to review the 
recommendation.  In accordance with St. Joseph’s bylaws, the 
chief of the medical staff selected physicians to serve on the 
hearing panel, and the hospital president exercised authority 
delegated by the medical staff to select A. Robert Singer, a 
semiretired attorney, to serve as the hearing officer.   
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
6 
 
Invoking his statutory right to “challenge the impartiality 
of any member or hearing officer” under Business and 
Professions Code section 809.2, subdivision (c) (section 809.2(c)), 
Natarajan challenged Singer’s appointment on grounds of 
financial bias.  Natarajan’s challenge relied primarily on this 
court’s decision in Haas v. County of San Bernardino (2002) 27 
Cal.4th 1017 (Haas).  In Haas, this court found a due process 
violation where a county appointed an attorney to serve as an 
ad hoc temporary hearing officer to adjudicate a business 
licensing dispute.  Haas reasoned that the nature of the 
relationship between the county and the attorney created an 
impermissible temptation for the attorney to favor the county in 
hopes she might be hired to adjudicate more cases in the future.  
(Id. at p. 1020.)  Natarajan argued that Singer had an analogous 
temptation to favor Dignity Health.  Natarajan emphasized that 
St. Joseph’s hired Singer at the recommendation of Dignity 
Health, which was paying Singer for his work on the matter; and 
Singer had previously served as a hearing officer in eight peer 
review hearings, one of which was still ongoing, at other Dignity 
Health hospitals (in addition to conducting hearings at hospitals 
affiliated with other networks).  Natarajan acknowledged that 
Singer’s contract contained a provision that would preclude St. 
Joseph’s from hiring him for three years.  Natarajan argued, 
however, that this bar was insufficient because it did not extend 
to the dozens of other Dignity Health facilities in the state.   
Singer, exercising his section 809.2(c) authority to rule on 
disqualification motions, denied Natarajan’s challenge.  Later, 
after several evidentiary hearings spanning nearly a year, the 
peer review panel upheld the medical executive committee’s 
recommendation to revoke Natarajan’s staff membership and 
privileges. 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
7 
 
Natarajan filed an administrative appeal.  He did not 
challenge the sufficiency of the evidence supporting the panel’s 
decision; his primary argument was instead that he had not 
received a fair hearing because of Singer’s purported financial 
conflict.  Rejecting the argument, the governing board’s 
subcommittee affirmed the panel’s decision.  Natarajan then 
filed a petition for writ of administrative mandate in the 
superior court.  The superior court denied the petition, 
concluding, as relevant here, that Natarajan had not established 
that Singer stood to gain a “direct financial benefit from the 
outcome” of the proceeding.  (§ 809.2(b).)   
Natarajan appealed.  In a published decision, the Court of 
Appeal rejected Natarajan’s challenge to Singer’s ruling on his 
disqualification motion.  The court reasoned that in the context 
of private hospital peer review, disqualification standards are 
not governed by constitutional due process, as in Haas, but by 
statute; section 809.2(b) specifies that the hearing officer “shall 
gain no direct financial benefit from the outcome.”  (Bus. & Prof. 
Code, §§ 809.2(b), 809.7; Natarajan v. Dignity Health (2019) 42 
Cal.App.5th 383, 391 (Natarajan).)  Concluding that potential 
reappointment within the same private hospital network does 
not qualify as a direct financial benefit, the Court of Appeal 
affirmed the denial of Natarajan’s writ petition.  (Natarajan, at 
p. 392.) 
In so holding, the Court of Appeal disagreed with  Yaqub 
v. Salinas Valley Memorial Healthcare System (2004) 122 
Cal.App.4th 474 (Yaqub), which, relying on Haas, held that a 
hospital peer review hearing officer should have been 
disqualified because, among other things, the hearing officer 
had been appointed on an ad hoc basis and there was a 
possibility he would be reappointed in the future.   
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
8 
 
We granted review to address the disagreement between 
the published decisions of the Courts of Appeal. 
II. 
The “peer review statute, like the common law fair 
procedure doctrine that preceded it, ‘establishes minimum 
protections for physicians subject to adverse action in the peer 
review system.’ ”  (El-Attar, supra, 56 Cal.4th at p. 988, quoting 
Mileikowsky, supra, 45 Cal.4th at p. 1268; see Bus. & Prof. Code, 
§ 809.2.)  One of these protections is the right to a hearing before 
an impartial body.  To secure this right, the peer review statute 
permits physicians to question panel members and hearing 
officers and to challenge their impartiality.  (§ 809.2(c).)  Unlike 
the codes that govern the disqualification of judges (Code Civ. 
Proc., § 170.1) or neutral arbitrators (e.g., id., §§ 1281–1281.95), 
the peer review statute does not contain comprehensive 
standards to determine whether panel members or officers 
should be disqualified.  But it does contain an express standard 
for disqualification on the basis of financial interest in the 
proceeding:  A hearing officer, like members of the peer review 
panel, “shall gain no direct financial benefit from the outcome.”  
(Compare § 809.2(b) with § 809.2(a).) 
The parties agree that section 809.2(b)’s “direct financial 
benefit” standard governs this case but disagree about how it 
applies.  Natarajan contends that the prospect of future work for 
the same hospital or an affiliated hospital network is a direct 
financial benefit that requires disqualification.  Dignity Health, 
for its part, maintains that an interest in possible future 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
9 
 
employment is an insufficient ground for disqualifying a 
nonvoting hearing officer from service.   
A. 
Before assessing the parties’ competing positions, we 
begin by surveying the common ground between them.  The 
term “direct financial benefit” is undefined in the peer review 
statute, but it is not an unfamiliar standard.  As both sides 
agree, the term parallels — and by all appearances, derives 
from — the disqualification standard that courts had developed 
as a matter of common law fair procedure before the peer review 
statute was enacted.  Drawing in turn on due process case law, 
courts explained that fair procedure includes the right to an 
impartial decision maker.  (Applebaum, supra, 104 Cal.App.3d 
at p. 657, citing, inter alia, Withrow v. Larkin (1975) 421 U.S. 
35, 47; American Motors Sales Corp. v. New Motor Vehicle Bd. 
(1977) 69 Cal.App.3d 983, 991 (American Motors Sales Corp.); 
accord, Lasko v. Valley Presbyterian Hospital (1986) 180 
Cal.App.3d 519, 529.)  They explained that disqualification of 
the decision maker “should occur if there is actual bias,” but that 
“[d]isqualification may also be necessary if a situation exists 
under which human experience teaches that the probability of 
actual bias is too high to be constitutionally tolerable.”  
(Hackethal v. California Medical Assn. (1982) 138 Cal.App.3d 
435, 443 (Hackethal).)  One example of a situation where “the 
probability of actual bias is too high” is when the adjudicator 
“has a direct pecuniary interest in the outcome.”  (Ibid., italics 
added; accord, Lasko, at p. 529.)   
The parties agree that when the Legislature used the 
nearly identical phrase “direct financial benefit from the 
outcome” in setting out a financial conflicts standard in section 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
10 
 
809.2(b), it meant to codify the common law rule.  This stands to 
reason, since, as we explained in El-Attar, the peer review 
statute was, in general, designed to codify common law fair 
procedure.  (See El-Attar, supra, 56 Cal.4th at p. 988.)  
Considering section 809.2(b) from that vantage point makes 
certain points clear.  First, as both sides agree, section 
809.2(b) — like the parallel provision governing panel members 
in section 809.2(a), and like the common law rule that preceded 
them both — requires disqualification when financial conflicts 
create an unacceptable risk of bias.3  (See Hackethal, supra, 138 
Cal.App.3d at p. 443.)  Most obviously, this means neither the 
panel members nor the hearing officer may stand to realize 
financial gain as a direct result of the outcome of the proceeding.  
For example, a hospital cannot pay the hearing officer more 
depending on whether the peer review proceeding resulted in 
the termination of staff privileges.  (Cf. Tumey v. Ohio (1927) 
273 U.S. 510, 535 [criminal defendant denied due process 
because adjudicator had a “direct pecuniary interest in the 
outcome” in the form of costs and fees awarded only if defendant 
was convicted]; see id. at pp. 531–532.)  Further, to take an 
example that arises more commonly in the peer review setting, 
section 809.2(a) and (b) also mean that neither a panel member 
nor a hearing officer may serve if that person is a direct business 
competitor and thus stands to profit if the physician were 
ultimately to lose staff privileges.  (Hackethal, at p. 443 [if 
shown to be a business competitor of the petitioner, tribunal 
 
3  
This agreement makes it unnecessary for us to further 
address the issue Natarajan had originally posed in his petition 
for review, which asked whether section 809.2(b) requires 
disqualification only in the event of actual bias or whether it also 
reaches cases involving the appearance of bias. 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
11 
 
member could be subject to disqualification for having “a direct 
pecuniary interest in the outcome”]; cf. Gibson v. Berryhill 
(1973) 411 U.S. 564, 579 [state board composed of optometrists 
disqualified from adjudicating revocation of licenses of 
competing optometrists on grounds of “substantial pecuniary 
interest[s]”]; see id. at p. 578.)  Courts had so held as a matter 
of common law fair procedure (see Hackethal, at p. 443), and it 
is undisputed that the same prohibition applies by virtue of 
section 809.2’s codification of the common law standard.4 
There is, however, no similarly clear answer to the 
question whether section 809.2(b) reaches financial conflicts 
based on the hearing officer’s possibility of future employment.  
No prestatutory fair procedure case ever addressed the question.  
The Court of Appeal, in its opinion, suggested the answer was 
clear from the Legislature’s choice of the term “ ‘direct financial 
benefit,’ ” reasoning that if the Legislature had intended to 
disqualify a hearing officer who has a “mere possible interest in 
future employment,” it would have described the disqualifying 
benefit as “ ‘potential’ or ‘possible,’ rather than ‘direct.’ ”  
(Natarajan, supra, 42 Cal.App.5th at pp. 391–392.)  We are, 
however, unpersuaded that the plain language of the statute 
categorically exempts financial conflicts based on the possibility 
of future financial gain.  In ordinary parlance, the word “direct” 
 
4  
The parties’ agreement on this point appears to reflect a 
more general consensus about the disqualification of business 
competitors in peer review.  The problem arises enough that it 
is explicitly mentioned in the federal peer review statute, which 
is otherwise silent on questions of peer review participant 
disqualification; the statute directs that neither panel members 
nor hearing officers may serve if they are “in direct economic 
competition with the physician involved.”  (42 U.S.C. 
§ 11112(b)(3)(A)(ii)–(iii).) 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
12 
 
connotes immediacy:  the “absence of an intervening agency . . . 
or influence” or “stemming immediately from a source.”  
(Webster’s 9th New Collegiate Dict. (1988) p. 358.)  But much 
like the word “immediate” itself, “direct” is a relative term.  The 
competitor cases illustrate the point.  An adjudicator does not 
gain an immediate financial benefit from disciplining a 
competitor in the sense that money automatically lands in the 
adjudicator’s hands upon ruling, as would a bribe or a kickback.  
Still, no one disputes that business competitors can have a 
disqualifying direct financial interest in a disciplinary 
proceeding.  The common law fair procedure cases explain why:  
Even though the prospect of gaining a competitive advantage is 
not as direct a benefit as money in hand, it is sufficiently direct 
to create a “distinct possibility” the controversy “will not be 
decided on its merits but on the potential pecuniary interest” of 
the adjudicator.  (American Motors Sales Corp., supra, 69 
Cal.App.3d at p. 988; see id. at p. 987; see also Gibson v. 
Berryhill, supra, 411 U.S. at p. 579 [adjudicator’s “financial 
stake need not be as direct or positive as it appeared to be in 
Tumey [v. Ohio, supra, 273 U.S. 510]” for it to be disqualifying 
(italics added)].)  
Reading section 809.2(b) against this backdrop, we agree 
with both sides that the question before us is not simply whether 
the hearing officer will receive a guaranteed payout depending 
on the results of the peer review hearing.  It is, rather, whether 
the hearing officer stands to gain a financial benefit that creates 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
13 
 
an unacceptable risk that the officer will make his decisions 
with his mind on money, not on the merits.  
B. 
We now move from common ground to contested terrain.  
Our jumping-off point is Haas, supra, 27 Cal.4th 1017.  As noted 
above, Haas was a due process challenge to a county business 
licensing appeal based on the financial conflicts associated with 
the way the county had appointed the administrative hearing 
officer.  The administrative hearing officer was not a county 
official but was a practicing lawyer who had been hired by the 
county on an ad hoc basis to adjudicate the proceedings.  She 
had not been hired by the county previously, but the county’s 
counsel indicated that the county intended to use the officer 
again “ ‘as the occasion suggests, in the future if she’s interested 
in doing it and if the case should arise’ ” and that the county’s 
contract with the officer was “ ‘open-ended.’ ”  (Id. at p. 1022.)  
This court held that, as a matter of due process, the officer 
should have been disqualified. 
We explained that due process requires quasi-judicial 
decision makers, like judicial officers, to be fair and impartial.  
And while adjudicators are ordinarily afforded a presumption of 
impartiality, no such presumption applies where financial 
interests are concerned; rather, due process requires the 
disqualification of an adjudicator who has a financial interest 
that “would offer a possible temptation to the average person as 
judge not to hold the balance nice, clear and true.”  (Haas, supra, 
27 Cal.4th at p. 1026.)  It was this basic principle, we explained, 
that led courts to condemn so-called fee systems, in which 
prosecutors and plaintiffs chose a judge who was paid a flat fee 
for each case adjudicated.  Although the judge was paid 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
14 
 
regardless of outcome, more cases meant more compensation, 
and so the selection process gave the judge “a pecuniary 
incentive to favor frequent litigants.”  (Id. at p. 1028, citing, 
inter alia, Brown v. Vance (5th Cir. 1981) 637 F.2d 272, 274.)  
From the fee system cases we derived this general lesson:  “A 
procedure holding out to the adjudicator, even implicitly, the 
possibility of future employment in exchange for favorable 
decisions creates such a temptation and, thus, an objective, 
constitutionally impermissible appearance and risk of bias.”  
(Haas, at p. 1034.)   
Natarajan contends that Haas applies here and requires 
the disqualification of hearing officers who are appointed on an 
ad hoc basis, because the possibility of future hearing officer 
employment creates an unacceptable risk of bias.  Dignity 
Health disagrees.  It contends Haas is distinguishable, and that 
the practical consequences of importing its due process standard 
to the peer review context would be to require the 
disqualification of virtually all experienced hearing officers, the 
vast majority of whom are lawyers appointed by hospitals on an 
ad hoc basis. 
As an initial matter, we agree with Dignity Health that 
Haas does not directly control this case.  The question before us 
concerns 
the 
meaning 
of 
the 
peer 
review 
statute’s 
disqualification standard for hearing officers in section 809.2(b); 
Haas was not a peer review case and did not interpret or address 
section 809.2(b).  And Haas was not decided until 13 years after 
the peer review statute was enacted, so the Legislature could 
not possibly have written section 809.2(b) with Haas in mind.  
Nonetheless, we consider Haas helpful to our analysis 
inasmuch as it explains why a decision maker’s interest in 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
15 
 
future employment can sometimes affect the decision maker’s 
impartiality, though it may not operate as directly as an 
outright bribe or kickback.  As Haas explains, when an 
adjudicator’s prospect for similar work in the future is entirely 
dependent on the goodwill of the hiring entity that is free to 
select its adjudicators, adjudicators may face financial 
temptations not to hold the balance “ ‘nice, clear and true.’ ”  
(Haas, supra, 27 Cal.4th at p. 1029.)  For hospital peer review 
hearing officers, the financial benefits at stake may be 
sufficiently “direct” to require disqualification under section 
809.2(b).  
But while we conclude that the possibility of future 
employment may give rise to a disqualifying conflict, we do not 
hold that the possibility of future employment always (or nearly 
always) gives rise to a disqualifying conflict when a hearing 
officer has been appointed on an ad hoc basis.  Potential future 
employment, on its own, is not automatically disqualifying.  If it 
were, then every hospital would presumably be required to 
locate and train a new hearing officer for every peer review 
hearing it holds.  This rule would come at considerable cost to 
the efficiency and the integrity of the peer review process, and 
with minimal benefit in terms of assurance of hearing officer 
impartiality.  The law imposes no such requirement. 
Nor do we hold that disqualification is required whenever 
a hospital expresses interest in employing a hearing officer 
again in the future if the circumstances arise, regardless of the 
extent of the hearing officer’s financial interest in future 
employment with that particular hospital.  When we found a 
disqualifying bias in Haas, we explained that the county’s ad hoc 
appointment of the hearing officer deviated from the recognized 
norm in quasi-judicial governmental adjudications, which is to 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
16 
 
use hearing officers who are full- or part-time employees of the 
local or state government.  Where the county had expressed 
interest in employing that particular individual on future 
occasions, the ad hoc hiring process created a risk that she 
would be rewarded with future remunerative employment 
should she render decisions favorable to the county.  We 
considered that risk unacceptable under the circumstances.  
(See Haas, supra, 27 Cal.4th at p. 1037, citing Gov. Code, 
§§ 27720, 27727.)   
Significant differences between the relevant settings 
counsel against a presumption that the circumstances that 
created an intolerable risk of bias for the ad hoc administrative 
judge in Haas would necessarily also create an intolerable risk 
for a hearing officer conducting hospital peer review.  While the 
recognized norm is to use employee adjudicators in the county 
quasi-judicial administrative proceedings context, the same 
norm does not hold in the peer review context.  California’s 
hundreds of health care facilities generally select hearing 
officers to serve only as the need arises, and hearing officers, 
like Singer in this case, frequently find themselves performing 
similar work for various entities.  And by design, it is ultimately 
the peer reviewers — not the hearing officers — who possess the 
specialized knowledge required to evaluate the medical 
qualifications of other practitioners and who are granted 
decisionmaking authority as the “trier[s] of fact.”  (Mileikowsky, 
supra, 45 Cal.4th at p. 1269; § 809.2(b); § 809.2(a).)  A hearing 
officer — if one is selected at all — plays a comparatively limited 
role in peer review proceedings. 
We do not suggest, of course, that the comparatively 
limited role of hearing officers makes their impartiality 
irrelevant.  Peer review hearing officers are not entirely walled 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
17 
 
off from the decisional process and can make procedural and 
evidentiary rulings that can affect what evidence the triers of 
fact can use as a basis for making their decision.5  It is 
presumably for these reasons that the statute secures the right 
to an impartial hearing officer, as well as impartial panel 
members.  (§ 809.2(c).)  But Haas did not consider the different 
circumstances that might be present in the context of peer 
review proceedings, where, among other things, hearing officers 
preside over and make significant rulings that affect the 
proceedings but ultimately have no vote on the ultimate issue, 
which is reserved for the judgment of an expert panel of the 
physician’s peers. 
Natarajan suggests that the difference in contexts in some 
ways might require more demanding disqualification standards 
than ordinary judicial or quasi-judicial adjudication, as 
substantive errors by biased individuals might go unremedied 
because of the deferential standard of review applicable to peer 
review proceedings.  (Code Civ. Proc., § 1094.5, subd. (b) [abuse 
of discretion].)  Whatever merit this argument may have in 
other contexts, it has limited force here.  Whether a hearing 
 
5 
As the Court of Appeal noted, the statute permits a 
hearing officer to “participate[] in the committee’s deliberations 
as a legal advisor, without a vote in the committee’s decision.”  
(Natarajan, supra, 42 Cal.App.5th at p. 387; see id. at p. 386.)  
Here, Singer served as advisor to the panel, but did not vote on 
the outcome; he also evidently assisted the panel in drafting its 
written report.  Contrary to Natarajan’s arguments, however, 
the record contains no indication that Singer substantively 
influenced the panel’s decisions or otherwise overstepped the 
bounds of the role assigned to him by statute or by hospital 
bylaws. 
 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
18 
 
officer’s procedural rulings give rise to prejudicial error is a 
question of law reviewed independently on the administrative 
record (Pomona Valley Hospital Medical Center v. Superior 
Court (1997) 55 Cal.App.4th 93, 101), and a finding of prejudicial 
error would entitle the licentiate to a new hearing.  Judicial 
review cannot, of course, stand in for a fair proceeding in the 
first instance.  (Haas, supra, 27 Cal.4th at p. 1034.)  But the 
scope of judicial review in peer review proceedings does not 
persuade us that we must apply a heightened standard for the 
disqualification of hearing officers on the basis of financial 
conflicts. 
Ultimately the question concerns when the risk of 
financial bias becomes intolerable under the circumstances.  
This is an inherently context-sensitive inquiry, and it should be 
undertaken with appropriate regard for the unique features of 
the hospital peer review context. 
C. 
Our conclusions about the governing law mean we must 
part company with the Court of Appeal in this case, which 
considered the prospect of future employment to be categorically 
beyond the reach of section 809.2(b).  But we also part ways with 
Yaqub, supra, 122 Cal.App.4th 474, whose analysis diverges 
from ours in several respects.  The court in that case considered, 
solely as a matter of general principles of fair procedure, 
whether a peer review hearing officer should be disqualified for 
bias for several reasons:  that he had presided over the same 
physician’s prior hearing; that he had once served on the board 
of governors for the hospital’s foundation, which raised funds for 
the hospital; and that he had been hired on an ad hoc basis to 
preside over a number of peer review hearings for the same 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
19 
 
hospital in the past and “there was the potential for further 
appointments in the future.”  (Id. at p. 485; see id. at p. 481.)  
The Court of Appeal in Yaqub concluded that, although there 
was “no evidence of actual prejudice or of a direct financial 
interest in the outcome of the case,” the circumstances 
surrounding the ad hoc hiring of the hearing officer were 
sufficient to create a “ ‘possible temptation’ ” to favor the 
hospital that led to a disqualifying “appearance of bias” under 
Haas.  (Id. at pp. 485, 484.) 
As the Court of Appeal in this case explained, Yaqub never 
considered the import of section 809.2(b), the provision that 
governs in this case.  But this was not Yaqub’s most significant 
error.6  As we have explained above, the parties agree that 
section 809.2(b) was designed to embody principles of fair 
procedure, which is what Yaqub purported to apply in that case.  
The more significant difficulty comes from Yaqub’s suggestion 
that disqualification was required because of an “appearance of 
bias,” even in the absence of evidence “of a direct financial 
interest in the outcome of the case.”  (Yaqub, supra, 122 
Cal.App.4th at pp. 484, 485; see id. at p. 481.)  Contrary to 
 
6 
If indeed it was error at all; the opinion does not mention 
whether the hospital at issue was private or public, and thus 
whether Business and Professions Code section 809.2 applied. 
 
The Court of Appeal in this case also declined to follow 
Yaqub because it failed to appreciate that Haas was based on 
due process principles applicable to public entities, whereas due 
process principles do not apply to private hospitals.  (Natarajan, 
supra, 42 Cal.App.5th at pp. 389–390, 392.)  We express no view 
on whether, or to what extent, due process may impose different 
requirements from common law fair procedure in various 
contexts; for purposes of our analysis here, it makes no 
difference.   
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
20 
 
Yaqub, we conclude that disqualification is required only when 
there exists a direct pecuniary interest — in the words of section 
809.2(b), a “direct financial benefit” — that creates an 
intolerable risk of actual bias.  Such a risk does not arise in every 
case simply because a hearing officer has been hired by a 
hospital on an ad hoc basis and may be hired again by the same 
hospital at some indefinite point in the future.  To the extent 
Yaqub v. Salinas Valley Memorial Healthcare System, supra, 
122 Cal.App.4th 474 can be understood as holding otherwise, we 
disapprove it.  
D. 
We now consider whether, on the facts of this case, 
Natarajan showed that the prospect of future employment 
created an intolerable risk of bias that should have disqualified 
Singer from serving as a hearing officer.  Two central factors 
guide our inquiry in this case:  whether a particular entity 
exercises control over the hearing officer selection process, and 
the extent and likelihood of future financial opportunities that 
the hearing officer may receive from the same entity.7  
Here, Singer was formally appointed by St. Joseph’s.  
Since retiring from his law firm, Singer received most of his 
income from hearing officer work at various health facilities, 
 
7  
As part of the disqualification inquiry, a reviewing court 
may need to consider whether the hearing officer has offered the 
physician an adequate opportunity to establish a record on the 
factors relevant to disqualification and, if necessary, permit 
additional discovery to augment the record, as the trial court did 
here.  
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
21 
 
often earning substantial sums from these appointments.8  We 
can therefore assume that Singer had more than a trivial 
incentive to do what he could to put himself in a good position 
for future hearing officer appointments at St. Joseph’s.  But 
Singer’s 
contract 
prohibited 
further 
appointments 
at 
St. Joseph’s for a period of three years, meaning that Singer’s 
only immediate employment prospects lay with facilities not 
involved in the particular proceeding at issue.  Whatever 
financial interest Singer may have had in the outcome of the 
proceedings at St. Joseph’s, it was not sufficient to raise a 
meaningful risk of bias. 
The three-year bar offers an additional reason why this 
case differs from Haas, beyond the differences associated with 
the hospital peer review setting (see pp. 14–18, ante).  In Haas, 
the county’s counsel had affirmatively expressed interest in 
hiring the hearing officer again “ ‘in the future if she’s interested 
in doing it and if the case should arise’ ”; the county’s contract 
with the hearing officer was “ ‘open-ended’ ”; and the county and 
the hearing officer both anticipated the possibility of her being 
hired for future hearings.  (Haas, supra, 27 Cal.4th at p. 1022.)  
Haas suggested a temporary bar on future employment was one 
way to “eliminate the risk of bias.”  (Id. at p. 1037, fn. 22.)  We 
do not hold that such a temporary bar is invariably required for 
hospital peer review hearing officers; again, the inquiry will 
 
8  
In addition to his eight hearing officer appointments at 
different facilities in the Dignity Health network before the 
St. Joseph’s hearings began in 2014, Singer reported that he had 
also served as a hearing officer at a similar number of hearings 
for entities affiliated with Sutter Health, as well as at a few 
hearings at facilities under other hospital network umbrellas, 
including Kaiser and Banner Health.  
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
22 
 
depend on the circumstances.  But we agree with the superior 
court in this particular case that the three-year bar on serving 
as a hearing officer at St. Joseph’s was sufficient to eliminate 
any significant financial temptation Singer might otherwise 
have had to favor St. Joseph’s or its medical staff.     
Natarajan argues the bar was insufficient because it did 
not extend to other hospitals across the Dignity Health network.  
This argument depends on the factual premise that Dignity 
Health, rather than the hospital medical staff, controlled the 
selection process of hearing officers at least at St. Joseph’s, if not 
also at other affiliate hospitals.  If Dignity Health did not have 
control over the process at St. Joseph’s, let alone at its other 
affiliate hospitals, Singer would have no reason to believe that 
the outcome of this proceeding would affect his prospect of 
future employment at another Dignity Health facility.   
To evaluate this argument requires us to take a closer look 
at what the relevant statutes and record show about Dignity 
Health’s role in Singer’s selection to conduct the hearing at 
St. Joseph’s.  By law, the choice was not Dignity Health’s to 
make.  The peer review statute authorizes an individual 
hospital’s medical staff to grant or revoke hospital privileges, 
and to decide how peer review should be structured within the 
bounds prescribed by statute, including whether and how the 
peer review panel and hearing officer are selected.  (Bus. & Prof. 
Code, §§ 809, subd. (a)(8), 2282.5 [medical staff self-
governance].)  The medical staff is a separate legal entity from 
the hospital itself.  (Hongsathavij v. Queen of Angels etc. Medical 
Center (1998) 62 Cal.App.4th 1123, 1130, fn. 2.)  This structure 
carries with it certain baseline assurances.  Since a hospital’s 
medical staff is made up of doctors and other licentiates who 
could one day themselves be subject to a peer review hearing, 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
23 
 
each medical staff has an incentive to ensure fairness in the 
process for conducting peer review, including how hearing 
officers are selected.   
Here, St. Joseph’s medical staff, through its bylaws, 
delegated the authority to appoint hearing officers to the 
St. Joseph’s president.  This delegation, in itself, is of no 
moment; we have already held that a hospital’s unilateral 
selection, even when made via delegation to a hospital official, 
ordinarily comports with the peer review statute and basic 
principles of fair procedure.  (El-Attar, supra, 56 Cal.4th at 
pp. 989–991, 993.)  After all, the statute provides that “a review 
hearing shall be held ‘as determined by the peer review 
body’ ” — which can include “ ‘any designee of the peer review 
body’ ” (id. at p. 989; Bus. & Prof. Code, §§ 809, subd. (b), 
809.2(a)) — and we do not presume that any hearing officer 
appointed by a medical staff’s designee is likely to be biased.  
(El-Attar, at p. 995.)  But Natarajan argues that the practical 
effect of the delegation in this case was to permit the hearing 
officer selection to be made at the direction of Dignity Health 
officials — rather than by officials at St. Joseph’s — which 
raises concerns about Singer’s incentives to please Dignity 
Health. 
When Natarajan raised a similar argument in the trial 
court, that court found no evidence that Dignity Health was 
responsible for Singer’s appointment.  Natarajan contests some 
of the trial court’s underlying findings, but our review of the 
record accords with the trial court’s conclusion on this 
overarching point.  Although a Dignity Health attorney initially 
contacted Singer to inquire about his availability to serve as a 
peer review hearing officer at St. Joseph’s, the decision 
ultimately resided with St. Joseph’s officials:  The St. Joseph’s 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
24 
 
medical staff delegated the authority to choose a hearing officer 
to the president of St. Joseph’s, and it was the president who 
contacted and formally appointed Singer a few weeks later.  
Nothing in the record shows that the Dignity Health attorney 
directed or pressured the St. Joseph’s president to select Singer. 
In the absence of evidence to show that Dignity Health 
actually controlled the decision to hire Singer, Natarajan argues 
that, by virtue of corporate structure, Dignity Health effectively 
controls the president of St. Joseph’s and any decision he makes.  
Under Dignity Health’s bylaws, the hospital president is 
appointed by the hospital’s community board (the governing 
body of the hospital), which is, in turn, established by Dignity 
Health.  But the record contains no information about how the 
members of the community board are appointed (or removed) or 
how that board appoints (or removes) the hospital president.  
And standing alone, the manner in which the president is 
appointed is insufficient to establish that the hearing officer 
appointment here was made by Dignity Health, rather than by 
the president, acting independently on behalf of the medical 
staff. 
In short, based on the record Natarajan assembled, we 
cannot conclude that Dignity Health controlled the appointment 
of Singer as a hearing officer at St. Joseph’s; nor can we draw 
the further conclusion that Dignity Health controls hearing 
officer appointments at its other affiliate hospitals.  And if 
Dignity Health did not control Singer’s selection, there is no 
reason to believe that Singer had a possible temptation to skew 
the results in favor of St. Joseph’s in the hopes of obtaining 
future work from another of Dignity Health’s entities.  We 
therefore reject Natarajan’s argument that we should discount 
the effect of the three-year bar in this case because it applied 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
25 
 
only to St. Joseph’s and not to every other health facility 
affiliated with Dignity Health.  
It is true, of course, that Singer and hearing officers may, 
in general, face some incentive to court future work at other 
hospitals by developing a prohospital reputation.  An employer-
specific temporary bar will not completely eliminate that sort of 
incentive.  But to eliminate such incentives entirely would 
require ad hoc hearing officers to forswear future employment 
at any hospital.  The ban on receiving a “direct financial benefit 
from the outcome” (§ 809.2(b)) does not reach so far.  The point 
of this type of precaution is not to bar a hearing officer from any 
future work, nor is it to eliminate ad hoc engagements 
altogether.  It is, rather, to secure the basic preconditions for a 
fair hearing on a physician’s qualifications. 
As this case demonstrates, hospitals and their medical 
staffs can choose from a variety of tools to ensure the basic 
statutory preconditions are satisfied, including the use of 
temporary bars on reappointment.  They are also free to take 
other measures not inconsistent with the statute, as appropriate 
given the circumstances of each particular case.  (See 
Mileikowsky, supra, 45 Cal.4th at p. 1274 [medical staff bylaws 
can provide additional peer review protections beyond statutory 
requirements].)9  Once again, what measures are necessary will 
 
9  
For instance, Natarajan takes issue with the fact that the 
statute permits hospitals to choose hearing officers unilaterally; 
arbitrators, by contrast, are to be “selected by a process 
mutually acceptable to the licentiate and the peer review body.”  
(§ 809.2(a).)  The argument suggests that giving physicians a 
role in recommending or selecting hearing officers could help to 
attenuate any connection between an outcome in one hearing 
 
NATARAJAN v. DIGNITY HEALTH 
Opinion of the Court by Kruger, J. 
 
26 
 
depend on a careful, context-specific judgment about the risk of 
bias presented on the facts.  Here, based on the record before us 
in this particular case, we conclude the circumstances 
surrounding Singer’s appointment did not create an intolerable 
risk of bias that would require disqualification under section 
809.2(b).   
III. 
We affirm the judgment of the Court of Appeal.  
KRUGER, J. 
 
We Concur: 
CANTIL-SAKAUYE, C. J. 
CORRIGAN, J. 
LIU, J. 
CUÉLLAR, J. 
GROBAN, J. 
JENKINS, J. 
 
and a hospital’s hiring decision in the next.  To Natarajan’s 
point, nothing in the statute requires medical staffs to permit 
the physician to play a role in the selection process, but neither 
does the statute forbid medical staffs from allowing the 
physician some role if they so choose. 
 
See next page for addresses and telephone numbers for counsel who 
argued in Supreme Court. 
 
Name of Opinion Natarajan v. Dignity Health 
__________________________________________________________  
 
Procedural Posture (see XX below) 
Original Appeal  
Original Proceeding 
Review Granted (published) XX 42 Cal.App.5th 383 
Review Granted (unpublished)  
Rehearing Granted 
 
__________________________________________________________  
 
Opinion No. S259364 
Date Filed: August 12, 2021 
__________________________________________________________  
 
Court:  Superior  
County:  San Joaquin 
Judge:  Barbara A. Kronlund 
 
__________________________________________________________   
 
Counsel: 
 
Law Offices of Stephen D. Schear, Stephen D. Schear; Justice First, 
Jenny Chi-Chin Huang; and Tara Natarajan for Plaintiff and 
Appellant. 
 
Manatt, Phelps & Phillips, Barry S. Landsberg, Doreen Wener 
Shenfeld, Joanna S. McCallum and Craig S. Rutenberg for Defendant 
and Respondent. 
 
Davis Wright Tremaine and Terri D. Keville for John Muir Health, 
Adventist Health, Kaiser Foundation Hospitals, MemorialCare Health 
System, Providence St. Joseph Health, Sharp Healthcare and Sutter 
Health as Amici Curiae on behalf of Defendant and Respondent. 
 
Arent Fox, Lowell C. Brown, Sarah Benator and Diane Roldán for 
California Hospital Association as Amicus Curiae on behalf of 
Defendant and Respondent. 
 
 
 
Nossaman, Rosenberg, Shpall & Zeigen, Carlo Coppo; Patrick K. Moore 
Law Corporation, Patrick K. Moore; Hanson Bridgett, Glenda M. 
Zarbock; James R. Lahana; and John D. Harwell as Amici Curiae on 
behalf of Defendant and Respondent. 
 
Horvitz & Levy, H. Thomas Watson, Peder K. Batalden and Joshua C. 
McDaniel for Scripps Health and Regents of the University of 
California as Amici Curiae on behalf of Defendant and Respondent. 
 
Francisco J. Silva, Long X. Do and Joseph M. Cachuela for California 
Medical Association as Amicus Curiae. 
 
Freeman Mathis & Gary, Marc J. Shrake; and Joseph P. Wood for 
American Academy of Emergency Medicine as Amicus Curiae. 
 
 
Counsel who argued in Supreme Court (not intended for 
publication with opinion): 
 
Stephen D. Schear 
Law Offices of Stephen D. Schear 
2831 Telegraph Avenue 
Oakland, CA 94609 
(510) 708-9636 
 
Barry S. Landsberg 
Manatt, Phelps & Phillips, LLP 
2049 Century Park East, Suite 1700 
Los Angeles, CA 90067 
(310) 312-4259