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Filed 6/30/15 Primex C linical Laboratories v. D ept. of Health S ervices CA3 NOT TO BE PUBLISHED

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Sacramento)

----

PRIMEX CLINICAL LABORATORIES, INC.,

Plaintiff and Appellant,

v. DEPARTMENT OF HEALTH SERVICES,

Defendant and Respondent. C074343 (Super. Ct. No. 34

- 2012

- 80001187

- CU

- WM

- GDS)

In 2000, the Department of Health Services (Department) informed Primex Clinical Laboratories, Inc. (Primex), a provider of Medi

- Cal services, that Primex was under investigation for various violations of Medi

- Cal provisions. In connection with that investigation, the Department withheld Primex’s Medi

- Cal payments for services and suspended Primex as a Medi

- Cal provider. In 2004, the parties settled the case, allowing the Department to retain the funds withheld from Primex during the investigation and reinstating Primex as a Medi

- Cal provider.2

Nearl y e ight years after the settlement, Primex filed this action by way of a petition for writ of mandate , asserting that Primex was entitled to the funds ($685,820.44) the Department withheld during the investigation. The trial court de nied the petition. We affirm. The settlement allowed the Department to retain the funds, and nothing in the statutory scheme requires now that the Department pay it to Primex.
BACKGROUND It appears that there is no dispute concerning the facts (as opposed to their legal effect), so we recount the facts as stated by the trial court. “Primex is a licensed c linical laboratory participating in the Medi

- Cal program. “In or about October 2000, the Department received notice that Primex was committing possible violations of various Medi

- Cal provisions. On October 17, 18, and 26, 2000, Department staff conducted onsite investigations of Primex’s labs and records. “On or about February 14, 2001, the Department received an email from the
federal Health Car e Financing Agency (now known as the Centers for Medicare and Medicaid) to stop Medicare payments to Primex be cause it was being sanctioned by the federal government . The HCFA also informed staff at the Department that some of Primex’s directors were the subject of a federal criminal investigation being undertaken by the Federal Bureau of Investigation.
“On Marc h 29, 2001, the Department issued a letter informing Primex that pursuant to Welfare and Institutions Code sections 14107.11 and 1404 3

. 6 and 42 C.F.R. § 455.23, the Department was temporarily suspending and deactivating Primex’s Medi

- Cal provider number an d withholding 100% of the payments owed to Prim ex as a Medi

- Cal provider (the ‘ Te mporary Suspension and Withhold’ ). The letter identified possible
violations of licensing laws and standards, and advised Primex that it was under investigation for possible fraud, abuse, or willful misrepresentation in the Medi

- Cal program. The alleged deficiencies included: failing to supply patient testing documents; failing to give notice of reportable diseases; failing to report patient test results in a3

timely manner; billing for tests for which no supporting documentation was available; receiving invalid referrals; performing more tests than required; performing and billing for tests that were not medically necessary; allowing unlicensed personnel to perform testing; p roviding lab testing to clients at less tha n the cost reimbursed by the Medi

- Cal program (overbilling); reporting test results that are incompatible with human life; failing to enroll in proficiency testing; and failing to notify clients of critical test v alues. “Following the Temporary Suspension and Withhold, on June 26, 2001, the Department issued a Statement of Deficiencies describing Primex’s alleged violations of the licensing laws and standards. The list of deficiencies was substantially the same a s that identified in the March 29, 2001, letter. Primex responded with an itemized Plan of Correction, which the Department accepted.

“ On October 10, 2001, the Department served Primex with a Notice of Intent to Impose Civil Money Penalties for the previ ously

- identified deficiencies. “October 17, 2001, the Department issued a Notice of Sanction [] to Primex, assessing a penalty of $136,000 for licensing violations, plus $13,865 for investigative costs, for a total penalty of $149,865. Primex appealed the Notice of Sanction[]

. “During the pendency of Primex’s appeal, the State Controller’s Office initiated and completed an audit of Primex’s billing records. The audit resulted in no adverse findings against Primex. “In July 2004, Primex and the Department settled the appeal arising from the
Notice of Sanction [] . The Settlement Agreement refers to the October 2000 investigation of Primex’s labs; the July 3, 2001, Statement of Deficiencies; the October 9, 2001, Notice of Intent to Impose Civil Money Penalties; and the October 17, 2002, Notice of Sanction[] . The Settlement Agreement also refers to the March 29, 2001, Temporary Suspension and Withhold, and indicates that, as of the date of the Settlement Agreement,
the Department was withholding $835,685.44 of Primex’s Medi

- Cal earnings.4

“ The Settlement Agreement recites that the parties have disc ussed the issues raised by the ‘ Notice of Sanction , and by the imposition of the Temporary Suspension and Withhold,’ and agre ed to resolve these issues. Under the Settlement Agreement, Primex agreed to pay, from the funds withheld by the Department, civil money penalties and investigation costs in the amount of $149,865 to the Department’s Lab Field Service s Branch. In exchang e, the Department agreed to lift the Temporary Suspension and Withhold and reactivate Primex’s Medi

- Cal provider number. The parties also agreed that ‘[t]he Department shall retain the remainder of the [withheld funds], totaling $685,820.44.’

“ In the gen eral provisions of the Settlement Agreement, the parties agreed that the settlement resolved ‘only the issues dealt with in the above

- referenced Notice of
Sanction ,’ and that nothing in the Agreement ‘restricts the filing of a criminal prosecution
nor limi ts any claims that may be made therein or binds any federal, other state, or local prosecuting, administrative, or regulatory authorities.’ “The parties also agreed to ‘waive all rights either party may have to further litigate, in any forum, as between t he parties, the issues raised by this appeal.’ “In August 2004, shortly after the Settlement Agreement, the Department released $149,865 from the Withhold for payment to the State of the civil money penalties and investigation costs, and directed that the balance of the Withhold be transferred to the Health Care Deposit Fund, which is part of the State’s General Fund. The transfer had the effect of liquidating any funds remaining in the temporary withhold account. “From 2004 through June 2012, Primex too k no action to recover or inquire about the balance of the withheld funds. On June 22, 2012, Primex filed the present action seeking a peremptory writ of mandate compelling the Department to release and remit to Primex the balance of the withheld funds, t otaling $685,820.44, plus interest.” The trial court determined that the “critical issue” was how to interpret the provision of the s ettlement a greement providing that the Department “shall retain” the5

remaining funds in the w ithhold. The Department ar gued that the provision gave the funds to the Department permanently, while Primex argued that the provision allowed the Department to retain the funds only temporarily, until the conclusion of the Department’s investigation into fraud and abuse.
The co urt found some ambiguity in the “shall retain” provision and looked to the

rem ainder of the agreement and also to extrinsic evidence to resolve the ambiguity. Concerning the scope of the settlement a greement, the court wrote: “Although there is languag e in the general provisions of the S ettlement A greement suggesting that
the A greement was only intended to resolve the issues identified in the Notice of
Sanction , the specific provisions of the Agreement establish that the parties intended to
settle the i ssues raised by the imposition of the Temporary Suspension and Withhold.” Also, “the parties agreed in the Settlement Agreement to resolve the matters raised by the appeal in ‘final decision’ and ‘without the necessity of further proceedings.’ The partie s expressly agreed to ‘waive all rights . . . to further litigate, in any forum, as between the parties, the issues raised by this appeal.’ ” Concluding its analysis of the contract language, the court reasoned that, if the retention of the remaining fund s in the w ithhold was intended to be temporary, the settlement a greement would have made that clear. Concerning extrinsic evidence, the court relied on the subsequent conduct of both parties. The Department liquidated the funds, transferring them to th e g eneral f und, and did not notify Primex of the status of the funds, while Primex did nothing to recover the funds, or even to inquire about them, for nearly eight years. The trial court therefore denied the petition for writ of mandate because the Department has no legal duty to releas e the funds to Primex.

LAW REGARDING WRIT OF MANDATE A traditional writ may issue to compel the performa nce of a ministerial duty, and

“ to correct those acts and decisions of administrative agencies which are in violation of law, where no oth er adequate remedy is provided. [Citations.] ” ( Bodinson Mfg. Co. v.6

California E. Com. (1941) 17 Cal.2d 321, 329; see also Code Civ. Proc., § 1085.)

“ Generally, Code of Civil Procedure section 1085 may only be employed to c ompel the performance of a duty which is purely ministerial in character. [Citation.] [¶] A ministerial act is an act that a public officer is required to perform in a prescribed manner in obedience to the mandate of legal authority and without regard t o his own judgment or opinion concerning such act’ s propriety or impropriety, when a given state of facts exists. Discretion, on the other hand, is the power conferred on public functionaries to act officially according to the dictates of their own judgme nt. [Citation.] ” ( Rodriguez v.
Solis (1991) 1 Cal.App.4th 495 , 501

- 502.) Here, Primex asserts that the Department has a ministerial duty to ret urn the remaining funds in the w ithhold.
DISCUSSION
I Contract Interpretation Primex contends that, applyin g contract interpretation principles to the s ettlement

a greement, we must conclude that the parties intended for the Department’s retention of the remaining funds in the w ithhold to be temporary only. To the contrary, both (1) the most reasonable interpre tation of the settlement a greement and (2) the extrinsic evidence of the parties’ subsequent conduct favor the interpretation placed on the agreement by the
trial court

. “In interpreting the settlement agreement, we apply the general rules of contract
i nterpretation. [Citation.] ‘The goal of contractual interpretation is to determine and give effect to the mutual intention of the parties. [Citations.]’ [Citation.] Thus, ‘a “court’s paramount consideration . . . is the parties’ objective intent when th ey entered into [the contract].” [Citations.]’ [Citation.] ‘ A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the

sa me is ascertainable and lawful.’ [Citatio n.] ‘ “ If a contract is capable of two7

constructions courts are bound to give such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect . . . .” [Citations.]’ [Citation.] In addition, ‘ [a]n interpretation which gives effect is pre ferred to one which makes void.’ [Citation.]” ( Khavarian Enterprises, Inc. v. Commline, Inc. (2013) 216 Cal.App.4th 310, 318 .)

“ Whether contractual language is ambiguous is a question of law that we review
de novo. [Citations.]

. . . The interpretation of a contract, including the resolution of any ambiguity, is solely a judicial function unless the interpretation turns on the credibility of
extrinsic evidence. [Citations.]” ( American Alternative Ins. Cor p. v. Superior Court (2006) 135 Cal.App.4th 1239, 1245 .) Here, our review is de novo because it is a matter of contract interpre tation and the extrinsic evidence is not in conflict. ( Founding Members of the Newport Beach Country Club v. Newport Beach Cou ntry Club, Inc. (2003) 109 Cal.App.4th 944, 955 .) Primex argues that (1) the language of the s ettlement a greement clearly and unambiguously stated the parties’ intention to make temporary the retention of the remaining funds in the w ithhold and (2) the e xtrinsic evidence supports this interpretation. Neither argument has merit. The language of the s ettlement a greement, viewed as a whole , allowed the Department to retain permanently the remaining funds in the w ithhold.
The specific provision allowing the Department to retain the remaining funds in
the w ithhold did not expressly state whether the retention of the remaining funds was to be permanent : “2. Withhold. The Withhold will be managed as follows:
“a. The Department shall release $149,865 fr om the Withhold funds to attorney I. Mark Bledstein, Esq. Mr. Bledstein shall deposit these funds into his Client
Trust Account . . . . Within two business days, he shall disburse this same amount by8

check made out to ‘California Department of Health Ser vices, Laboratory Field Services,’ . . . .

“b. The Department shall retain the remainder of the Withhold, totaling $685,820.44.” (B oldface & underscoring omitted.) In this manner, the s ettlement a greement provided that the Department would
retain the remaining funds, but it did not provide for what it would do with the funds. Therefore, the specific provision was ambiguous, at least in the sense of what the Department was to do with the remaining funds. Each party cites other language in the s ettleme nt a greement, claiming that it resolves the ambiguity in the specific provision in its own favor. The trial court agreed with the Department, and we also find that interpretation the most reasonable. As recounted above, the trial court acknowledged that the s ettlement a greement had a provision stating that its only purpose was to resolve the n otice of sanction . The

s ettlement a greement provided: “These matters and Agreement resolve only the issues
dealt with in the above

- referenced N otice of S anction []

. Nothing herein restricts the filing of a criminal prosecution no r limits any claims that may be made therein nor binds any federal, other state, or local prosecuting, administrative, or regulatory authorities.” (Underscoring omitted.) The n otice of s an ction imposed the civil penalty of $149,865, including investigative costs, all of which Primex agreed to pay out of funds released
from the w ithhold. That would seem to favor an interpretation t hat the remaining funds
in the w ithhold would be held tempor arily for payment as a result of other proceedings.
But the s ettlement a greement also contained language, as noted by the trial court, indicating that the s ettlement a greement resolved all current proceedings by the Department against Primex, not just t he n otice of s anction , and prevented further litigation

. T he s ettlement a greement specifically provided that it “resolve[d] the temporary suspension and withhold imposition.” And the parties “waive[d] all rights either party may have to further litigate, in any forum, as between the parties, the issues9

raised by this appeal.” This language specifically prohibits further litigation with respect to not only the n otice of s anct ion but also the t emporary suspension and w ithhold. Since
the s ettlement a greement goes well beyond the matter of the n otice of s anction , it cannot
be construed to be limited to the n otice of sanction , despite the language in the agreement to the contrary

. Our objective is to give meaning to every word and provision in the contract, “ if reasonably practicable

. ” (Civ. Code, § 1641 , italics added. ) Here, it is not reasonably practicable, given the whole of the contract, to limit the scope of the s ettlem ent

a greement to resolution of the n otice of s anction

. Primex contends that interpreting the s ettlement a greement as giving the remaining funds in the w ithhold to the Department permanently is an absurd and unfair result and must be avoided. (See Wright v. Coberly

- West Co. (1967) 250 Cal.App.2d 31,
35

- 36 [contracts interpreted to avoid harsh or inequitable result] .) According to Primex, construing the settlement a greement to mean that it gave up $835,685.44 to settle $149,865 in sanctions is absurd and harsh. We disagree with the premise and the
conclusion

. The effect of the s ettlement a greement was to re solve not only the n otice of

s anction but also to resolve all issues that resulted in the suspension of Primex’s status as a Medi

- Cal p rovider and to reinstate Primex as a Medi

- Cal provider . The record does not reflect that Primex’s suspension as a Medi

- Cal provider would have been restored simply by paying the amount in the n otice of s anction

. Under those circumstances, this interpreta tion of the settlement a greement is neither harsh nor absurd. Primex also contends that, considering the s ettlement a greement in the context of the relevant statutes, we must conclude that the retention of the remaining funds in the

w ithhold was meant to be temporary. Because a withhold is only a temporary condition
under the statute (see Welf. & Inst. Code, § 14107.11, subd. (a)(2)(A)) , argues Primex, language in the s ettlement a greement providing that the Department would retain the remaining funds in t he w ithhold must be interpreted to mean that it was to retain the10

funds only temporarily. This interpretation, however, ignores the fact that the s ettlement

a greement resolved the w ithhold. The Department was given the remaining funds to be
turned over t o the g eneral f und , which is not inconsistent with the statute in this regard. Therefore, the most reasonable interpretation of the s ettlement a greement is that the parties intended for the Department to retain the w ithhold permanently. In any event, even if we were to conclude that the s ettlement a greement is hopelessly ambiguous on its face, the subsequent conduct of the parties, for at least the first eight years after they entered into the s ettlement a greement, showed that they
believ ed the Department’s retention of the w ithhold was to be permanent. (See Morey v.
Vannucci (1998) 64 Cal.App.4th 904, 912 [subsequent conduct relevant to show intent].) There have been no further proceedings by the Department concerning Primex’s conduct that led to the temporary suspension and the w ithhold since the signing of the

s ettlement a greement. That is evidence that the parties intended the s ettlement a greement to resolve all issues without further litigation. And, i f all issues were resolved, then it only makes sense that the retention of the remaining funds in the w ithhold was meant to be permanent because there was no further purpose for a w ithhold fund going forward , at least as it related to the Department

. Also , as noted by the trial court, the Department turned the remaining funds over
to the g eneral f

und, and Primex made no claim to those funds until nearly eight years later. That conduct is inconsistent with an intent to have the Department’s retention of
th e remaining funds in the w ithhold be temporary. At oral argument, counsel for Primex argued that Primex delayed seeking a refund of the remaining funds in the withhold because of an ongoing qui tam action that was no t resolved until 2011. That argument w as not raised in the briefs on appeal, nor was it supported by evidence in the record; therefore, the argument was improper, and reliance on the argument is forfeited. (Cal. Rules of Court, rule 8.204(a)(1)(C); People v. Harris (1992) 10 Cal.App.4th 672, 686.)11

The trial court properly interpreted the s ettlement a greement as making the Department’s retention of the remaining funds in the w ithhold permanent.
II
The Department’s Authority Primex argues that the Department had no statutory authorization to retain the remaining funds in the w ithhold permanently and that the s ettlement a greement could not expand the Department’s authority in that regard. According to Primex, the Department only has two options under the statutory authority: (1) initiate a judicial proceeding against Primex or (2) abandon the funds back to Primex. The a rgument is unpersuasive because the Department has authority to settle such controversies, as it did here by agreeing with Primex to terminate proceedings concerning Primex’s alleged fraud and
abuse in exchange for retention of the funds.

“ To be valid, ad ministrative action must be within the scope of authority conferred by the enabling statutes. [Citation.]” ( Terhune v. Superior Court (1998) 65 Cal.App.4th 864, 872

- 873.) In the case of the Department, t he statutes conferred the authority to
withhold Me di

- Cal payments and to resolve the case against Primex. Primex does not contend that the Department lacked authority to withhold Medi

Cal payments under Welfare and Institutions Code 14107.11 . It also does not contend that the Department lacked authori ty to enter into the s ettlement a greement. Instead, it contends that “because the Settlement Agreement reserved, and did not release Primex from, any potential criminal charges, the Settlement Agreement cannot be read as resolving the disposition of the R emainder of the Withhold.” According to Primex, the
result of that condition (a possible criminal action) was that “the disposition of the Remainder of the Withhold was controlled by statute.” We disagree. Primex relies primarily on a case holding that the Department has the statutory authority to retain Medi

- Cal payments while a provider is under investigation. ( Bergeron v. Department of Health Services (1999) 71 Cal.App.4th 17. ) In that case, the court12

wrote: “Under the governing regulations, the D epartment is permitted, in fact encouraged, pursuant to 42 Code of Federal Regulations section 455.23 (1998) to withhold payments to Medi

- Cal providers when provided with reliable evidence that there has been fraud or willful misrepresentation in the pract ices of the provider. In an obvious effort to comport with the dictates of due process, the regulation carefully lays out the limitations of the state agency’s authority to take such action. They include: 1) notice must be given to the provider stating the ‘general allegations as to the nature of the withholding action, but need not disclose any specific information concerning its ongoing investigation’; 2) the notice must state the regulatory authority for the withholding and advise the provider he or s he may submit written evidence for consideration by the agency; and 3) the withholding must be temporary, continuing only until a final resolution of the allegations of fraud. (42 C.F.R. § 455.23; [citation].) The regulatory scheme is obviously designed to parallel a criminal investigation by the agency or a state fraud prosecuting unit. It is temporary in nature in order to hold the status quo and protect the government’s monetary interests until the criminal investigation ends in either abandonment or a judicial proceeding.” ( Bergeron v. Department of Health Services, supra, at p. 24 .) Bergeron is unhelpful to Primex because it did not involve a settlement of such allegations, as found here. In that case, the investigation was pending. Here, on the other hand, the parties, by their s ettlement a greement, resolved the matters between them in the current investigation without the necessity of further proceedings. And they waived all rights to further litigate the issues in any forum. Additionally, the State Controller had already undertaken and completed an audit with no adverse findings against Primex. Therefore, the retention of the remaining funds was not done in connection with an investigation; it was the resolution.
The s ettlement a greement’s statement that it did not “restrict[] the filing of a criminal prosecution” did not render the retention of the remaining funds in the w ithhold13

temporary. To the contrary, the s ettlement a greement fully and finally resolved the litigation between the part ies, including the Department’s regulatory investigation of the very serious allegations against Primex. The agreement made the retention of funds permanent, and there were no funds left to be, in Primex’s words, “controlled by statute.” Therefore, there is no merit in Primex’s contention that the permanent retention of the funds remaining in the w ithhold at the time of settlement was contrary to the Department’s statutory authority.
III Remaining Issues The parties raise several other issues. The Depar tment contends that: (1) this action is barred by the statute of limitations and b y laches, (2) this court has no subject matter jurisdiction over the matter, and (3) mandamus is not available because the Department has executed its statutory duties. And Primex contends th at it is entitled to
interest on the funds remaining in the w ithhold. Since we conclude that the trial court properly ruled in favor of the Department, we need not reach these additional issues not considered by the trial court.
DISPO SITION The order denying the petition for writ of mandate is affirmed. The Department is awarded its costs on appeal. (Cal. Rules of Court, rule 8.278 .)

NICHOLSON , J.

We concur:

BLEASE , Acting P. J.

MAURO , J.