Source: https://casetext.com/case/solorzano-v-superior-court-1
Timestamp: 2019-04-24 14:15:37+00:00

Document:
Appeal from Superior Court of Los Angeles County, No. LC009163, Richard A. Adler, Judge.
Kurt Eggert, Morrison Foerster, Joseph C. Markowitz, Tamara L. Joseph and Richard W. Grime for Petitioners.
Thomas S. Sayles, Alan S. Weinger, George A. Crawford and Nicholas Lanza as Amici Curiae on behalf of Petitioners.
Rushfeldt, Shelley Drake, Randall L. Shelley, Stacy Raphael, Greines, Martin, Stein Richland and Timothy T. Coates for Real Party in Interest.
Ada Solorzano, America Rodriguez and Dolores Morales sued Family Health Plan, Inc. (FHP) for damages and injunctive relief, asserting violations of several California statutes arising from FHP's allegedly unfair and misleading advertising practices in soliciting subscribers for its "Senior Plan," a coordinated care plan designed for Medicare beneficiaries. The question before us is whether the federal statute regulating Medicare-qualified health maintenance organizations (HMO's) preempts the field and deprives the states of jurisdiction to grant injunctive relief to these and other individuals dissatisfied with the manner in which an HMO solicits and enrolls Medicare recipients. Our answer is that it does not.
Plaintiffs, each of whom receives Medicare and Medi-Cal benefits, were visited at home by FHP's agents, urged to enroll in FHP's Senior Plan, and assured they could continue to be treated by their non-FHP physicians for a "nominal" additional charge. All three plaintiffs enrolled and agreed to assign their Medicare and Medi-Cal benefits to FHP. To their dismay, they discovered that, contrary to the agents' representations, treatment by non-FHP physicians was not covered except for emergency care provided outside FHP's service area and the only covered services were those offered by FHP's own physicians and affiliated hospitals. They discovered the problem when their own doctors turned them away or billed them in full for noncovered services.
Plaintiffs disenrolled and filed this action, asking for injunctive relief to stop FHP's alleged unfair competition, deceptive trade practices and deceptive advertising. In addition, Plaintiffs sought general and punitive damages on common law theories of fraud and intentional infliction of emotional distress. FHP demurred to Plaintiffs' first amended complaint, moved to strike the punitive damage claims and moved for judgment on the pleadings against the causes of action seeking injunctive relief. The trial court overruled the demurrer and denied both motions, and FHP petitioned for a writ of mandate ( Family Health Plan, Inc. v. Superior Court (Feb. 3, 1992) B064462 [nonpub. opn.]) compelling the trial court to grant the motion for judgment on the pleadings on preemption grounds. Although at that stage we were undecided about the merits of FHP's claims, we recognized the need for an early determination of the question and therefore issued an alternative writ which, unfortunately, used the historically correct but currently confusing command to the trial court to either vacate its order denying the motion for judgment on the pleadings or show cause why it should not be ordered to do so.
The trial court took us literally, vacated its order and entered a new order granting the motion. We, in turn, dismissed FHP's petition as moot. Not surprisingly, Plaintiffs then filed this petition for a writ of mandate to compel the trial court to reinstate its original order denying the motion for judgment on the pleadings. This time we issued an order to show cause instead of an alternative writ.
Contrary to popular belief, we sometimes issue Palma notices ( Palma v. U.S. Industrial Fasteners, Inc. (1984) 36 Cal.3d 171, 180 [203 Cal.Rptr. 626, 681 P.2d 893]), alternative writs and orders to show cause not because we have made up our minds that the petition ought to be granted but because we perceive a genuine dispute and want to hear the other side of the story.
Plaintiffs contend their injunctive relief claims are not preempted by federal law. We agree.
(1) Congressional intent, whether explicitly stated or implicitly contained in the structure or purpose of a statute, determines whether a law of the United States preempts regulation by the states of the same subject matter. ( Cipollone v. Liggett Group, Inc. (1992) 505 U.S. ___ [120 L.Ed.2d 407, 422-423, 112 S.Ct. 2608]; Jones v. Rath Packing Co. (1977) 430 U.S. 519, 525 [51 L.Ed.2d 604, 613-614, 97 S.Ct. 1305].) In the absence of an express congressional command, state law is preempted (1) if it actually conflicts with federal law or (2) if federal law so thoroughly occupies a legislative field by a pervasive and complex regulatory system as to make reasonable the inference that Congress left no room for the states to supplement it. ( Fidelity Federal Sav. Loan Assn. v. De La Cuesta (1982) 458 U.S. 141, 153 [73 L.Ed.2d 664, 675, 102 S.Ct. 3014].) Everyone agrees there is no express preemption in this case.
Where, as here, Congress regulates a field historically within the police powers of the states (public health), the party asserting preemption must establish "that preemption was the `clear and manifest purpose of Congress.'" ( Pennsylvania Medical Soc. v. Marconis (3d Cir. 1991) 942 F.2d 842, 846, quoting Pacific Gas Elec. v. Energy Resources Comm'n. (1983) 461 U.S. 190, 206 [75 L.Ed.2d 752, 766, 103 S.Ct. 1713]; see also Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 937 [ 216 Cal.Rptr. 345, 702 P.2d 503].) To meet this burden, FHP claims congressional intent to preempt California's regulation of HMO marketing practices is implicit in the Health Care Financing Administration's (HCFA) pervasive regulation of the manner in which HMO's solicit and enroll Medicare-eligible beneficiaries. Alternatively, FHP claims a potential conflict exists between federal regulation of HMO marketing practices and state regulation of the same activities.
In the trial court and in its initial papers filed here, FHP did not assert preemption as a defense to Plaintiffs' common law damage claims but only to their claims for injunctive relief. While this case was pending, the United States Supreme Court clarified a previously murky issue by holding in Cipollone v. Liggett Group, Inc., supra, 505 U.S. ___ [120 L.Ed.2d 407, 112 S.Ct. 2608], that, for purposes of preemption analysis, the phrase "state law" includes common law claims, statutes and regulations. Because we conclude that the federal laws before us do not preclude state regulation of HMO's, it is in any event irrelevant whether Plaintiffs are seeking injunctive relief or damages.
Medicare is a two-part federal health insurance program for people 65 or older and certain disabled people. ( 42 U.S.C. § 1395 et seq.) Part A helps pay for inpatient hospital care ( 42 U.S.C. § 1395c et seq.) and part B helps pay for physicians' services and other outpatient care ( 42 U.S.C. § 1395j et seq.). Part A benefits are available to most people without payment of a premium but a monthly premium ($31.80 in 1992) is charged for part B benefits. Both parts have deductibles and coinsurance provisions (noncovered amounts which the beneficiary must pay personally or through other insurance).
Most Medicare beneficiaries receive medical care through the traditional "fee-for-service" delivery system. These people consult private physicians and use private hospitals, and bills for services rendered are sent by the healthcare providers to Medicare for payment. Medicare determines whether it will pay all or part of the fee (rates of reimbursement are based on the particular medical procedure and the geographic area in which the services are rendered) and any noncovered balance (including any deductible) is the patient's responsibility. Some services are not covered at all (such as routine physical examinations, eyeglasses, etc.) and are entirely the responsibility of the Medicare beneficiary. Privately purchased "medigap" insurance plans afford coverage for deductibles, copayments and excluded expenses for Medicare beneficiaries using a fee-for-service delivery system.
Although they are creatures of different statutes and regulations and have distinguishing features (e.g., in the manner in which benefits are delivered, the manner and timing of payments, and the amount of out-of-pocket payments required), HMO's and CMP's are generally referred to in the literature collectively as HMO's. FHP is an HMO, not a CMP but, insofar as we can tell, there are no differences relevant to the preemption issue before us.
This is referred to as a "lock-in" requirement because (subject to exceptions for emergency treatment) the patient is "locked in" to receiving care from HMO affiliated physicians and facilities.
HMO's are not eleemosynary organizations. Although Medicare patients account for only 33 percent of FHP's enrollees, 62 percent of its 1991 profit came from its contract with HCFA.
As noted at the outset, there is no express preemption statement in the Medicare statute. (2) (See fn. 7.), (3) As will now appear, neither is there an implicit expression of congressional intent to preempt state regulation of marketing efforts directed at Medicare beneficiaries.
FHP does not contend the Medicare statute preempts all state regulation of every aspect of the Medicare program. Instead, FHP focuses solely on the conduct condemned by Plaintiffs' complaint and asserts that marketing practices cannot be subjected to state regulation by an "unfocused, ad hoc request for injunctive relief in the sort of civil lawsuit asserted [by these Plaintiffs]." This rather myopic view of the issue incorrectly assumes that the identity of the plaintiff is relevant to the preemption analysis. It is not, and FHP cites no authority suggesting that it is. On the other hand, it is possible for Congress to preempt one area (but not others) of a federally regulated field ( Silkwood v. Kerr-McGee Corp. (1984) 464 U.S. 238, 249-256 [78 L.Ed.2d 443, 452-458, 104 S.Ct. 615]; Pacific Gas Elec. v. Energy Resources Comm'n., supra, 461 U.S. at pp. 205, 211-212 [75 L.Ed.2d at pp. 765-766, 769-770]) and we therefore accept FHP's "marketing practices" limitation of the area at issue in this case.
Regulations implementing 42 United States Code section 1395mm are set out in title 42 of the Code of Federal Regulations, section 417.100 et seq., and enrollment procedures are covered by 42 Code of Federal Regulations, section 417.223. Among other things, these regulations require an HMO to provide to interested persons the HMO's rules and regulations regarding membership; an adequate written description of the HMO's basic benefit package and available supplemental benefit packages; the liability of an enrollee for deductible and coinsurance amounts, noncovered services and out-of-plan services; enrollment eligibility and procedures; and such other information (e.g., hours of operation) as may be necessary for the beneficiary to make an informed decision about whether to enroll in the HMO. (42 C.F.R. § 417.223(c) (1).) Subdivision (c)(2) of section 417.223 requires an HMO to submit "all brochures, applications, and promotional and informational material which deal with enrollment of health insurance program beneficiaries with the HMO, to the [HCFA] for approval prior to issuance."
Subdivision (d) of section 417.223 of the Code of Federal Regulations lists proscribed marketing activities. "The HMO may not engage in any of the following activities in marketing its plan to health insurance program beneficiaries: [¶] (1) Practices which are discriminatory or unethical in nature; [¶] (2) Activities which would mislead, misinform, confuse, or defraud health insurance program beneficiaries, or misrepresent the HMO, its marketing representatives, or the [HCFA], such as claims that the HMO is recommended or endorsed by the [HCFA] (other than that the organization is approved as an HMO for purposes of participation in the health insurance program . . .), or claims that the [HCFA] recommends that the beneficiary enroll in the HMO or deceptive door-to-door solicitation; [¶] (3) Offers of gifts or payment as an inducement to enroll in the HMO (this does not proscribe the explanation of any legitimate benefits the beneficiary might obtain as an HMO enrollee, such as eligibility to enroll in a supplemental benefit plan which covers such items as deductibles and coinsurance, preventive services, etc.); and [¶] (4) Promises, claims, or other statements, written or oral, which conflict with, materially alter, or erroneously expand upon the information contained in the marketing materials approved by the Secretary."
The manual lodged by the parties was revised most recently in July 1992. It is HCFA publication No. 75 and is available through the National Technical Information Service of the United States Department of Commerce, Springfield, Virginia.
Without regard to the identity of enrollees as Medicare recipients or otherwise, California's Department of Corporations regulates HMO's under the Knox-Keene Health Care Service Plan Act of 1975, sections 1340 et seq. of the Health and Safety Code.
A "health care service plan" is any person or organization "who undertakes to arrange for the provision of health care services to subscribers or enrollees, or to pay for or to reimburse any part of the cost for such services, in return for a prepaid or periodic charge paid by or on behalf of such subscribers or enrollees." (Health Saf. Code, § 1345, subd. (f).) FHP admits it is a "health care service plan" within the meaning of subdivision (f) of section 1345.
The Health Care Service Plan Act is intended, among other things, to ensure that enrollees are informed of available benefits and services to enable a rational consumer choice in the marketplace and to prevent fraudulent solicitations, deceptive advertising and misrepresentations in the enrollment process. (Health Saf. Code, § 1342, subds. (b), (c).) To this end, the act requires that plans be licensed (Health Saf. Code, § 1349), that they disclose their financial records to the Commissioner of Corporations (Health Saf. Code, § 1351.1), and that specified fees be paid to cover costs and expenses of administering the act (Health Saf. Code, § 1356). Detailed provisions cover persons and firms engaged in the solicitation of enrollees (Health Saf. Code, § 1359), solicitation materials (Health Saf. Code, § 1360), advertising (Health Saf. Code, § 1361) and disclosure forms (Health Saf. Code, § 1363).
Definitions are given for written and oral statements that are untrue (Health Saf. Code, § 1360, subd. (a)(1)), misleading (Health Saf. Code, § 1360, subd. (a)(2)), and deceptive (Health Saf. Code, § 1360, subd. (a)(3)). A representation that a plan is sponsored, recommended or approved by the Commissioner of Corporations is prohibited (Health Saf. Code, § 1360.1) and, subject to limited exceptions, all advertising materials must be filed with the Commissioner prior to distribution (Health Saf. Code, § 1361). Detailed disclosure statements (benefits, exceptions, limitations, full premium costs, deductibles, copayment requirements, etc.) are required (Health Saf. Code, § 1363) and deceptive names are prohibited (Health Saf. Code, § 1366).
Plaintiffs' requests for injunctive relief are not based on the Health Care Service Plan Act and the act is relevant only insofar as it helps us understand the interaction between the state and federal governments in regulating HMO's. FHP has not attacked the Commissioner of Corporations' right to enforce the Health Care Service Plan Act against FHP (for illegal marketing practices or otherwise) but has, as noted above, limited its attack to a private party's civil suit for injunctive relief. From our perspective, we have a conceptual problem with FHP's position in light of its express admission that it is covered by the act and its tacit admission that the Medi-Cal statute expressly permits state regulation — taken together, these concessions mean the Commissioner of Corporations could seek injunctive relief and civil penalties against FHP for the very conduct complained of by Plaintiffs but that Plaintiffs cannot seek injunctive relief and can only sue for damages. We reject the temptation to dispose of the issue on this basis and address the preemption issue on the merits.
Plaintiffs' complaint alleges a right to injunctive relief on the basis of three state statutes. The first, section 17200 of the Business and Professions Code, prohibits unlawful, unfair and fraudulent business practices and unfair, deceptive, untrue and misleading advertising. The second, section 17500 of the Business and Professions Code, makes it unlawful for any person or entity to induce someone to enter a contract by disseminating untrue or misleading information. The third, section 1770 of the Civil Code, prohibits deceptive practices in consumer transactions. These statutes are the bases of FHP's assertion that Plaintiffs' "ad hoc" requests for injunctions prohibiting misleading comments about FHP's lock-in provisions are "unfocused."
Plaintiffs contend the federal statute and regulations are not pervasive and do not sufficiently occupy the field to displace state regulation of FHP's marketing practices. We agree.
FHP contends state court injunctive relief potentially conflicts with federal regulation of an HMO's marketing practices because California might impose a penalty greater than any of those available under the federal regulations. We disagree.
First, a state's imposition of a stiffer penalty or a higher standard of care than mandated by federal law does not preclude state regulation. ( California v. ARC America Corp. (1989) 490 U.S. 93, 105 [104 L.Ed.2d 86, 97, 109 S.Ct. 1661] ["state causes of action are not preempted solely because they impose liability over and above that authorized by federal law"]; Silkwood v. Kerr-McGee Corp., supra, 464 U.S. at pp. 257-258 [78 L.Ed.2d at pp. 458-459] [punitive damage award 10 times greater than allowable federal fine upheld against federally licensed nuclear plant operator].) Second, the conflict requiring preemption is a conflict between state and federal law which arises when "compliance with both federal and state regulations is a physical impossibility" ( Florida Avocado Growers v. Paul (1963) 373 U.S. 132, 142-143 [10 L.Ed.2d 248, 257, 83 S.Ct. 1210]; see also Hillsborough County v. Automated Medical Labs., Inc., supra, 471 U.S. at pp. 715-716 [85 L.Ed.2d 714, 722-723]) or when state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress" ( Hines v. Davidowitz (1941) 312 U.S. 52, 67 [85 L.Ed. 581, 587, 61 S.Ct. 399]). Neither condition is present here, and mere speculation about a hypothetical conflict is not the stuff of which preemption is made. ( Younger v. Jensen (1980) 26 Cal.3d 397, 408-409 [ 161 Cal.Rptr. 905, 605 P.2d 813]; Exxon Corp. v. Governor of Maryland (1978) 437 U.S. 117, 130-131 [57 L.Ed.2d 91, 102-104, 98 S.Ct. 2207].).
Our review of the federal statute, regulations and operating manual on the one hand, and of Plaintiffs' complaint and the California statutes and regulations on the other, reveals no conflict, present or potential. Indeed, the federal and state regulatory schemes are strikingly similar, consistently parallel systems working together to prevent the very practices Plaintiffs allege — misrepresentations about the lock-in provisions of FHP's Senior Plan.
We cannot take seriously FHP's claim that an injunction might prevent the continued marketing of its Senior Plan in its present form. To justify an injunction restraining sales of that plan, the trial court would have to be satisfied that the plan itself was misleading, deceptive or otherwise prohibited. If it is, it should be enjoined. If it is not, it will not be.
Relying on Diaz v. Kay-Dix Ranch (1970) 9 Cal.App.3d 588 [ 88 Cal.Rptr. 443] and People ex rel. Dept. of Transportation v. Naegele Outdoor Advertising Co. (1985) 38 Cal.3d 509 [ 213 Cal.Rptr. 247, 698 P.2d 150], FHP also contends the mere existence of a federal regulatory scheme makes state injunctive relief inappropriate under general principles of equity. The cases are inapposite because, unlike the case at bench, both deal with fields absolutely and entirely preempted by federal law (immigration and Indian affairs).
Congress clearly recognized the need for state and local assistance in regulating the marketing of HMO's and other supplemental health care packages to the elderly and disabled and, quite the opposite of intending preemption, appears to have intended a call to the states (and private parties) for all the help it can get. Accordingly, Plaintiffs' petition for writ of mandate is granted. Let a writ issue directing the trial court to vacate its April 29, 1992, order granting FHP's motion for judgment on the pleadings and to reinstate its order of January 7, 1992, overruling FHP's demurrer to the first amended complaint and denying FHP's motion for judgment on the pleadings.
Spencer, P.J., and Ortega, J., concurred.
On December 1, 1992, the opinion was modified to read as printed above. The petition of real party in interest for review by the Supreme Court was denied February 11, 1993.

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