Title: P. v. Cole
Citation: N/A
Docket Number: S121724
State: California
Issuer: California Supreme Court
Date: June 12, 2006

1 
 
Filed 6/12/06 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
THE PEOPLE, 
) 
 
 
) 
 
Plaintiff and Appellant, 
) 
 
 
) 
S121724 
 
v. 
) 
 
 
) 
Ct.App. 4/1 D040475 
JEFFREY A. COLE et al., 
) 
 
) 
San Diego County 
 
Defendants and Respondents. ) 
Super. Ct. No. GIC783135 
___________________________________ ) 
 
 
Sections 655 and 2556 of the Business and Professions Code prohibit 
certain business and financial relationships between registered dispensing 
opticians and licensed optometrists.  We granted review in this case to consider 
whether the Knox-Keene Health Care Service Plan Act of 1975 (Health & Saf. 
Code, § 1340 et seq.1) (Knox-Keene Act) creates an exemption to these 
prohibitions when a licensed specialized health care service plan sublets space 
within the retail stores of a registered dispensing optician and employs 
optometrists to provide professional optometric services to plan subscribers at 
those locations.  The Court of Appeal held that although the provisions of the 
Knox-Keene Act establish an exemption to the rule against the corporate practice 
of optometry, they do not affect the statutory prohibitions on the relationships 
between registered dispensing opticians and licensed optometrists.  On the facts of  
                                              
1  
All further unlabeled statutory references are to the Health and Safety 
Code. 
2 
 
this case, we agree with the Court of Appeal’s conclusion.   We therefore affirm 
the Court of Appeal’s judgment. 
I.  FACTUAL AND PROCEDURAL BACKGROUND 
 
 
California law authorizes optometrists licensed by the California Board of 
Optometry and physicians licensed by the Medical Board of California (Medical 
Board) to perform eye examinations and write prescriptions for contacts and 
eyeglasses.  (See Bus. & Prof. Code, §§ 2003, 2050, 3010.1, 3041, 3041.2, 3042, 
3055.)  After receiving a prescription, a consumer may get the prescription filled 
not only by optometrists and physicians who sell eyewear as part of their practice, 
but also by registered dispensing opticians (RDO’s), i.e., dispensing opticians 
registered with the Division of Licensing of the Medical Board.  (See Bus. & Prof. 
Code, §§ 2543, 2550, 2553, 3041, 3042.) 
 
California law contains restrictions on the relationships that licensed 
optometrists and physicians may have with others involved in providing optical 
services, including RDO’s.  At issue here are the restrictions contained in Business 
and Professions Code sections 655 and 2556.  The former prohibits:  (1) licensed 
optometrists from having “any membership, proprietary interest, coownership, 
landlord-tenant relationship, or any profit-sharing arrangement in any form, 
directly or indirectly,” with an RDO or “with any person who is engaged in the 
manufacture, sale, or distribution to physicians and surgeons, optometrists, or 
dispensing opticians of lenses, frames, optical supplies, optometric appliances or 
devices or kindred products;” and (2) RDO’s from having any such arrangement 
with a licensed optometrist.  (Bus. & Prof. Code, § 655, subds. (a), (b), (c).)  “Any 
violation of this section constitutes a misdemeanor as to” the licensed optometrist 
involved in the violation “and as to any and all persons . . . who participate with” 
the optometrist “in [the] violation.”  (Bus. & Prof. Code, § 655.)  Business and 
Professions Code section 2556, as here relevant, makes it “unlawful” for RDO’s 
“to advertise the furnishing of, or to furnish, the services of . . . an optometrist,” or 
3 
 
“to directly or indirectly employ or maintain on or near the premises used for 
optical dispensing, . . . an optometrist.”  “Any person who violates” this section “is 
guilty of a misdemeanor.”  (Bus. & Prof. Code, § 2558.)  Courts have described 
the “basic aim” of these statutes as being “the elimination of the chance of 
dominion of the professional decisions of the practitioner by commercial 
interest.”2  (Drucker v. State Bd. of Med. Examiners (1956) 143 Cal.App.2d 702, 
712.) 
 
California law also restricts the relationships that optometrists may have 
with corporations.  In general, under California’s long-standing “policy . . . against 
[the] corporate practice of the learned professions,” for-profit corporations “may 
not engage in the practice of . . . medicine.”  (People v. Pacific Health Corp. 
(1938) 12 Cal.2d 156, 158-159 (Pacific Health).)  The ban on the corporate 
practice of medicine generally precludes for-profit corporations—other than 
licensed medical corporations—from providing medical care through either 
salaried employees or independent contractors.  (Ibid.; Conrad v. Medical Bd. of 
California (1996) 48 Cal.App.4th 1038, 1047-1048 [discussing exceptions].)  It 
has been held applicable with respect to optometrists.  (California Assn. of 
Dispensing Opticians v. Pearle Vision Center, Inc. (1983) 143 Cal.App.3d 419, 
427 (CADO).)  Courts have said that the ban on the corporate practice of medicine 
“is intended to ameliorate ‘the evils of divided loyalty and impaired confidence’ 
which are thought to be created when a corporation solicits medical business from  
                                              
2  
Defendants claim “there is strong evidence” that the commonly cited 
justification for Business and Professions Code sections 655 and 2556 “is a 
pretense, and that the statutes were really interest-group legislation designed to 
prevent competition with private optometrists who profit by selling eyewear to 
their patients.”  Defendants state that this issue was raised below in a counterclaim 
that was dismissed, and is separately being litigated by other parties in federal 
court.  However, in this court, defendants do not pursue this claim and “assume[] 
arguendo that the statutes’ stated justification is true.”  We express no view on the 
issue. 
4 
 
the general public and turns it over to a special group of doctors, who are thus 
under lay control.”  (Conrad v. Medical Bd. of California, supra, 48 Cal.App.4th 
at pp. 1042-1043.)   
 
Defendant Pearle, Inc., operates optical stores across the country where, in 
a single location, consumers may obtain not only frames and contact lenses, but 
also eye examinations and other treatment from licensed optometrists.  In the late 
1970’s and early 1980’s, Pearle Vision Centers, Inc., which was the operating 
subsidiary of Pearle, Inc.’s corporate predecessor, attempted to bring this business 
model to California, by selling franchises to optometrists licensed in California.  
The California Association of Dispensing Opticians sued Pearle Vision Centers, 
Inc., arguing that its franchise program violated California law.  The superior court 
issued both a temporary restraining order and preliminary injunction prohibiting 
Pearle Vision Centers, Inc., from offering franchises to optometrists in California.  
(CADO, supra, 143 Cal.App.3d at pp. 422-423.)  In 1983, a Court of Appeal 
upheld the superior court’s order, finding in part that by virtue of the control 
Pearle Vision Centers, Inc., retained under the franchise agreement, it was 
engaging in the illegal corporate practice of optometry.3  (CADO, supra, 143 
Cal.App.3d at pp. 426-428.)   
 
In 1986, with the case against Pearle Vision Centers, Inc., still pending, the 
Pearle entities adopted a new strategy for bringing their operations to California; 
as defendants here explained in the Court of Appeal, “[i]nstead of franchising its 
stores to [licensed] optometrists,” the Pearle entities “divided [their] operations in 
California in two, with” defendant Pearle Vision, Inc., “providing the services of 
opticians and a separate corporation,” defendant Pearle VisionCare, “employing 
optometrists and providing their services under the Knox-Keene Act.”  Pearle 
                                              
3  
According to defendants here, “[t]he primary defendants in CADO were 
Pearle Vision Centers, Inc. and its parent company, G.D. Searle, Inc.  [Citation.]  
G.D. Searle later reorganized and sold its Pearle entities to Grand Metropolitan 
Corporation, which, in turn, sold them to . . . Cole National Group, Inc. in 1996.” 
5 
 
Vision, Inc. (Pearle RDO) is an RDO; as such, it provides eyeglasses, contacts, 
and related fitting services using prescriptions written by licensed optometrists and 
ophthalmologists.  (Bus. & Prof. Code, § 2550.)  Pearle VisionCare (VisionCare) 
is a licensed “specialized health care service plan” under the Knox-Keene Act, 
which means that it “undertakes to arrange for the provision of health care services 
[in a single specialized area] to subscribers or enrollees, or to pay for or to 
reimburse any part of the cost for those services, in return for a prepaid or periodic 
charge paid by or on behalf of the subscribers or enrollees.”  (§ 1345, subd. (f)(1).)  
Operating under a license issued by the director of the Department of Managed 
Health Care (DMHC) (see §§ 1341, 1349), VisionCare provides, through licensed 
optometrists it employs or contracts with, eye examinations to individuals who pay 
a set enrollment fee.  VisionCare’s optometrists provide these examinations inside 
Pearle RDO’s retail stores, in distinct areas set off from the rest of the store, at 
some locations by separate doors or internal walls.  VisionCare sublets these areas 
from Pearle RDO.  To perform examinations, VisionCare’s optometrists use 
optometric equipment provided by Pearle RDO.  Thus, as defendants explained in 
the Court of Appeal, “since 1986,” Pearle RDO and VisionCare “have been 
operating in California in parallel within the same storefronts,” i.e., “the ‘Pearle 
Vision Stores.’ ”  
 
Pearle RDO and VisionCare are sister corporations; they are both wholly 
owned subsidiaries of Pearle, Inc.  Pearle, Inc.’s sole assets are shares of 
VisionCare and Pearle RDO.  Thus, Pearle, Inc., through its subsidiaries, operates 
retail outlets where customers can get both eye examinations from optometrists—
who are employed by VisionCare—and glasses from an optician—Pearle RDO.  
Pearle RDO advertises the availability of eye examinations at its retail optical 
stores; some of these advertisements state that eye examinations are performed by 
independent doctors of optometry, or that doctors in California are employed by 
VisionCare.  According to defendants, Pearle RDO and VisionCare adopted this 
business “model” in order “to provide consumers with integrated optical services” 
6 
 
by offering “optometrists’ services in close proximity to affiliated eyewear stores 
operated by” RDO’s.4 
 
 
In February 2002, the People filed this action against Pearle, Inc., Pearle 
RDO, VisionCare, other related entities, and individuals who allegedly had served 
as officers and/or directors of these entities.  In their first amended complaint, the 
People alleged in relevant part:  (1) that Pearle RDO had violated Business and 
Professions Code section 17500 by disseminating advertisements that were untrue 
or misleading in that they implied that Pearle RDO can and does provide 
optometric services (including eye examinations) and the services of optometrists, 
when in fact Pearle RDO is prohibited by law from providing such services and 
maintaining an optometrist on or near its premises; (2) that Pearle RDO had 
violated Business and Professions Code section 2556—and, in turn, Business and 
Professions Code section 17200, which prohibits unfair competition in the form of 
an unlawful business practice—by advertising the furnishing of optometrists and 
maintaining optometrists for the purpose of examining and treating eyes on or near 
premises used for optical dispensing; and (3) that Pearle RDO’s relationship with 
VisionCare “and [VisionCare’s] optometrists” violates Business and Professions 
Code section 655 and, in turn, Business and Professions Code section 17200.  For 
relief, the People requested that the court impose civil penalties for the alleged 
violations and permanently enjoin Pearle RDO and VisionCare from 
disseminating false or misleading advertising and from violating Business and 
Professions Code sections 655 and 2556.   
 
In April 2002, the People moved for a preliminary injunction prohibiting 
Pearle RDO from violating Business and Professions Code section 2556 by  
advertising the furnishing of optometric services, including eye examinations.  In  
                                              
4  
Pearle, Inc., is wholly owned by defendant Cole National Group, Inc. 
(CNG).  CNG acquired Pearle, Inc., Pearle RDO and VisionCare in 1996.  CNG is 
wholly owned by defendant Cole National Corporation. 
7 
 
opposition, defendants argued that the challenged advertisements were not untrue, 
misleading or unlawful, because they specified that all eye examinations are 
performed, not by Pearle RDO, but by optometrists employed by VisionCare.  In 
July 2002, the superior court granted the motion and issued a preliminary 
injunction prohibiting Pearle RDO from disseminating advertisements in 
California that have “the tendency or capacity to mislead the unwary or trusting 
consumer that [Pearle RDO] . . .  employs optometrists within the State of 
California.”  Regarding the latter prohibition, the court added the following 
proviso:  “[A]ny [Pearle RDO] advertisement . . . which references ‘eye 
examination[s],’ ‘exam[s],’ ‘examination[s],’ ‘doctor[s],’ ‘optometrist[s],’ or uses 
the image of a doctor is not enjoined if it prominently and, in close proximity to 
such word or image, states or displays:  ‘[Pearle RDO] does not employ Doctors 
of Optometry and does not provide eye exams in California.  [VisionCare] . . . , a 
licensed vision health care service plan, provides eye exams in California.’ ”  
 
Defendants appealed from the order granting the preliminary injunction, 
arguing in part that the Knox-Keene Act “relieves” specialized health care service 
plans “of restrictions on employing doctors, optometrists, and other health care 
professionals by providing” in section 1395, subdivision (b) (section 1395(b)) 
“that [plans] licensed under the Knox-Keene Act ‘shall not be deemed to be 
engaged in the practice of a profession, and may employ, or contract with, any 
professional . . . to deliver services.’ ”  The People cross-appealed, arguing that the 
preliminary injunction did not go far enough and, under Business and Professions 
Code section 2556, should have prohibited all advertising by Pearle RDO that 
mentions eye examinations, regardless of the inclusion of a disclaimer stating that 
VisionCare, rather than Pearle RDO, provides eye examinations.  Regarding 
section 1395(b), the People argued that this provision merely establishes an 
“exception regarding the corporate practice of optometry” and “does not change 
the laws that separate the practice of optometry from dispensing opticians/eyeglass 
retailers” or “permit opticians to practice or advertise the practice of optometry.”
8 
 
 
After the parties completed their briefing, the Second District Court of 
Appeal, in a published opinion, addressed related questions in Consumer Cause, 
Inc. v. National Vision, Inc. (Cal. App.), which we ordered depublished March 3, 
2004, S119959 (Consumer Cause).  That case involved an RDO that had set up 
optician centers in retail stores and, through a subsidiary licensed as a specialized 
health care service plan, had provided the services of licensed optometrists and 
ophthalmologists in separate but nearby offices within the retail stores.  The Court 
of Appeal held that Health and Safety Code section 1395 expressly exempted both 
the licensed specialized health care service plan and its parent company, the RDO, 
from the restrictions of Business and Professions Code sections 655 and 2556.   
 
The parties in this case, at the Court of Appeal’s request, submitted 
additional briefs addressing the relevance of Consumer Cause.  After receiving 
those briefs and hearing oral argument, the Court of Appeal held that the trial 
court had properly enjoined Pearle RDO’s advertising, but had erred in allowing 
Pearle RDO to advertise eye examinations with a disclaimer.  It thus ordered the 
superior court to expand the injunction to prohibit all advertising by Pearle RDO 
of optometric services.  In so holding, the court expressly disagreed with 
Consumer Cause and concluded, based on “the plain language of” the statute, that 
section 1395(b) “only . . . provide[s] an exception for Knox-Keene-approved 
corporations from the requirement that optometrists may only be employed by 
professional corporations.”  It “does not,” the court stated, either “expressly or 
impliedly . . . create an exemption from the restrictions on relationships between 
optometrists/ophthalmologists and opticians/optical retailers provided in Business 
and Professions Code sections 655 or 2556.”   
 
We granted the petition for review filed by Pearle RDO and VisionCare, 
limiting the issue to whether the Knox-Keene Act “exempt[s] approved providers 
under the Act from the limitations that Business and Professions Code sections 
655 and 2556 otherwise impose on business and financial relationships between 
9 
 
dispensing opticians and optometrists or ophthalmologists.”  We simultaneously 
ordered that the decision in Consumer Cause not be published.5 
DISCUSSION 
 
 
This case requires us to determine the meaning and interrelationship of 
several statutes.  “As in any case involving statutory interpretation, our 
fundamental task is to determine the Legislature’s intent so as to effectuate the 
law’s purpose.”  (People v. Murphy (2001) 25 Cal.4th 136, 142.)  The rules for 
performing this task are well established.  We begin by examining the statutory 
language, giving it a plain and commonsense meaning.  (Ibid.)  We do not, 
however, consider the statutory language in isolation; rather, we look to the entire 
substance of the statutes in order to determine their scope and purposes.  (Ibid.) 
That is, we construe the words in question in context, keeping in mind the statutes’ 
nature and obvious purposes.  (Ibid.)  We must harmonize the various parts of the 
enactments by considering them in the context of the statutory framework as a 
whole.  (Ibid.)  If the statutory language is unambiguous, then its plain meaning 
controls.  If, however, the language supports more than one reasonable 
construction, then we may look to extrinsic aids, including the ostensible objects 
to be achieved and the legislative history.  (In re Young (2004) 32 Cal.4th 900, 
906.) 
1.  The Statutory Language Supports the People’s Interpretation. 
 
 
As often happens in cases involving statutory interpretation, both sides in 
this case argue that the plain meaning of the statutory language supports their 
position.  The statute the parties focus on is section 1395(b), which provides:  
“Plans licensed under this chapter shall not be deemed to be engaged in the 
practice of a profession, and may employ, or contract with, any professional 
licensed pursuant to Division 2 (commencing with Section 500) of the Business 
                                              
5  
No petition for review was filed in Consumer Cause.   
10 
 
and Professions Code to deliver professional services.  Employment by or a 
contract with a plan as a provider of professional services shall not constitute a 
ground for disciplinary action against a health professional licensed pursuant to 
Division 2 (commencing with Section 500) of the Business and Professions Code 
by a licensing agency regulating a particular health care profession.” 
 
Defendants assert that the “plain language” of this provision “makes it clear 
that Knox-Keene plans are exempted from the restrictions found in” Business and 
Professions Code sections 655 and 2556.6  They reason as follows:  As here 
relevant, Business and Professions Code sections 655 and 2556 apply only to 
relationships of or with licensed professional optometrists.  The first clause of 
section 1395(b), by providing that Knox-Keene plans are not “engaged in the 
practice of a profession,” establishes that Knox-Keene plans are not licensed 
professional optometrists.  Because, under the first clause, “a Knox-Keene plan 
itself is not a professional,” it is “not subject to . . . statutory restrictions that apply 
to individual professionals,” including Business and Professions Code sections 
655 or 2556.  The second clause of section 1395(b) “reinforces” this conclusion by 
“grant[ing] Knox-Keene plans the authority to employ or contract with ‘any 
professional licensed pursuant to Division 2 [of the Business and Professions 
Code],’ i.e., both optometrists and RDO’s.”  This clause “unconditional[ly] 
authoriz[es]” Knox-Keene plans “to employ or contract with ‘any’ health care 
professional” and “specifically permit[s]” them “to establish various employment 
and contractual relationships with both optometrists and RDO’s,” notwithstanding 
Business and Professions Code sections 655 and 2556.  Finally, the second 
sentence of section 1395(b), in providing that “[e]mployment by or a contract with 
a plan as a provider of professional services shall not constitute a ground for 
disciplinary action against a [licensed] health professional,” establishes that 
                                              
6  
Like defendants, for convenience, we will use the term Knox-Keene plan to 
refer to a health care service plan licensed under the Knox-Keene Act. 
11 
 
“professionals may contract with plans” and that “neither an optometrist nor an 
RDO who is employed by or contracts with a Knox-Keene plan is in violation of 
Business and Professions Code [section] 655 or [section] 2556.”  
 
According to defendants, “[t]he net effect of these plainly written 
provisions” is to “exempt[] the relationships challenged” in this case “from the 
limitations on business and financial relationships between RDO’s and 
optometrists contained in [Business and Professions Code] sections 655 and 
2556.”  Taken together, they “specifically negate[] anything in [Business and 
Professions Code] sections 655 and 2556 that would make it illegal for an 
optometrist to be employed by a plan that contracts with an RDO or optical 
company, or for an RDO to contract with a plan that employs optometrists.”  As 
here relevant, they establish that (1) “a Knox-Keene plan employing an 
optometrist may lease space from an optical company because the status of Knox-
Keene plans as non-professionals, reinforced by the right of Knox-Keene plans to 
‘contract with’ professionals to provide professional services, renders [Business 
and Professions Code section] 655 inapplicable to a lease of space to a Knox-
Keene plan”; and (2) “optometrists and RDO’s who enter into these arrangements 
with VisionCare cannot be disciplined under [Business and Professions Code] 
sections 655 or 2556 for doing so.”7   
                                              
7  
In a footnote, defendants argue that their interpretation is “confirmed by” 
the last paragraph of Business and Professions Code former section 3103, 
renumbered as Business and Professions Code section 3109 as of January 1, 2005, 
which provides:  “Notwithstanding the provisions of this section or the provisions 
of any other law, a licensed optometrist may be employed to practice optometry 
. . . by a health care service plan pursuant to” the Knox-Keene Act.  It appears, 
however, that the Legislature added this exemption in 1979 simply to bring the 
relevant provision of the Business and Professions Code in line with the 
authorization in Health and Safety Code section 1395(b).  In describing this 
change, one legislative analysis stated:  “[Business and Professions Code former] 
[s]ection 3103 is [being] amended to include language currently existing in the 
Health and Safety Code, sections 1340 through 1395 . . . .  No change in law is 
taking place.”  (Sen. Com. on Business and Professions, analysis of Sen. Bill No. 
12 
 
 
Defendants also make the broader claim that through section 1395(b), “the 
Legislature specifically designed the Knox-Keene Act” to make “traditional 
corporate practice restrictions inapplicable to Knox-Keene plans.”  In place of 
these restrictions, defendants assert, the Legislature made Knox-Keene plans 
subject to a “comprehensive . . . regulatory scheme . . . designed in substantial part 
to address precisely [the same] concern”—“commercial interference with 
optometrists’ professional judgment.”  According to defendants, Business and 
Professions Code sections 655 and 2556 “are precisely the type of ‘corporate 
practice restrictions that the Legislature intended to override for health care 
service plans.’ ”  
 
Consistent with the Court of Appeal’s holding, the People argue that the 
“plain language” of section 1395(b) “create[s] only a narrow employment 
exemption and not [the] broad based commercial practice exemption” defendants 
assert.  According to the People, the first sentence of this provision “is aimed at 
[Knox-Keene] plans” and “clarifie[s]” that such plans are “not subject to 
prosecution for the unauthorized practice of the healing arts merely because [they] 
employ or contract with healing-arts professionals for the delivery of services to 
members.  Prior to Knox-Keene, this arrangement was unlawful.”  The provision’s 
second sentence, the People argue, is aimed at “licensed professional providers,” 
and simply establishes a complementary exemption for qualifying “ ‘professional 
person[s]’ ” from the “historical prohibition” against “working for non-
professionals.”  Thus, although the People agree that section 1395(b) both 
authorizes Knox-Keene plans to “employ or contract with RDO’s and 
optometrists,” and establishes that Knox-Keene plans are not professionals, they 
disagree that it “relieve[s]” Knox-Keene plans or their “providers”—here, 
                                                                                                                                      
 
461 (1979-1980 Reg. Sess.) as amended Apr. 19, 1979.)  Indeed, notwithstanding 
their argument, defendants acknowledge that this language was added as part of a 
“general ‘clean-up’ bill . . . to ‘correct antiquated language’ and bring the 
optometry chapter of the Business [and] Professions Code up to date.” 
13 
 
VisionCare’s optometrists—“from any other obligations imposed upon them by 
the Business and Professions Code.”  Nor do the People agree that section 1395(b) 
“relieve[s]” Pearle RDO, “by virtue of [its] association with” VisionCare, “of the 
limitations” in Business and Professions Code section 655 “on financial 
relationships with optometrists” or “the prohibition” in Business and Professions 
Code section 2556 “against advertising the furnishing of optometric 
examinations.”  In short, the People argue, VisionCare’s “status as a Knox-Keene 
plan does not shield [its] providers from their obligations under the Business and 
Professions Code.”    
 
In evaluating these conflicting interpretations, it is useful to begin by 
examining defendants’ alternative characterizations of Business and Professions 
Code section 655 and 2556 as “relationship restrictions,” “commercial-
relationship restrictions,” “commercial-practice restrictions,” or “corporate 
practice restrictions.”  In a 1982 report to the Legislature, the California 
Department of Consumer Affairs (DCA) identified four different types of 
“[c]ommercial practice restrictions” relating to optometry:  (1) “[p]rohibitions 
against the employment of optometrists by commercial corporations”; (2) 
“[p]rohibitions against landlord-tenant relationships between optometrists and 
opticians”; (3) “[r]estrictions on the number of branch offices an optometrist can 
operate”; and (4) “[r]estrictions on the use of trade names.”8  (DCA, Commercial 
Practice Restrictions in Optometry (Dec. 1982) Introduction (DCA Report).)  In a 
1989 rulemaking proceeding, the Federal Trade Commission (FTC) identified 
                                              
8  
The report was submitted pursuant to Business and Professions Code 
former section 655.1, which referred to “substantial evidence that the provisions of 
[Business and Professions Code] [s]ection 655 may adversely affect vision care 
consumers in California,” and required the DCA to submit “findings and 
recommendations for legislative action” to the Legislature after “conduct[ing] a 
study to determine the impact of commercial practice restrictions in the 
ophthalmic industry upon vision care consumers and competition in the 
ophthalmic industry.”  (Stats. 1982, Ch. 1594, § 1, p. 6299.)  
14 
 
these same “types” of “[s]tate restrictions on commercial practice,” although it 
characterized the first two as different “forms” of a broader “type” of restriction 
on “lay affiliations” with optometrists.  (54 Fed. Reg. 10286 (Mar. 13, 1989).)  
Thus, it appears that California’s ban on the corporate practice of optometry—i.e., 
employment of optometrists by for-profit corporations—and its restrictions in 
Business and Professions Code section 655 and 2556 on the relationships 
optometrists may have with RDO’s and manufacturers, are properly characterized 
as different types of commercial practice restrictions. 
 
With this understanding in mind, we agree with the People’s reading of the 
statutes in question.  Defendants’ broad claim that the Legislature enacted Health 
and Safety Code section 1395(b) specifically to make restrictions like Business 
and Professions Code sections 655 and 2556 inapplicable to Knox-Keene plans 
finds little support in the statutory language.  As the People observe, the “language 
of section 1395(b) mentions only employment and contracting relationships 
between [Knox-Keene] plans and providers,” and contains “no mention . . . of 
other, broader-based commercial relationship exemptions” and no “reference to 
[Business and Professions Code] sections 655 and 2556.”  As the People also 
observe, the language of Business and Professions Code sections 655 and 2556 
“extends well beyond employment and contracting relationships and forbids a 
variety of acts, such as profit sharing, proprietary interests and stock ownership.”  
Thus, as the People argue, adopting defendants’ broad claim would require us to 
find that the Legislature “intend[ed] to create an unstated exemption by 
implication to allow plans or their providers to do business outside the parameters 
of” other commercial practice restrictions, including Business and Professions 
Code section 655 and 2556.  Had the Legislature intended section 1395(b) to apply 
to all forms of lay affiliations with optometrists, as defendants contend, it would 
15 
 
not have used language limited to “employ[ing], or contract[ing] with” licensed 
professionals “to deliver professional services.”9  (§ 1395(b).)  
 
In this regard, section 1395(b) stands in marked contrast to the immediately 
preceding subdivision, section 1395, subdivision (a), which provides that Knox-
Keene plans may advertise “[n]otwithstanding Article 6 (commencing with 
Section 650) of Chapter 1 of Division 2 of the Business and Professions Code.”  
Had the Legislature intended to create the broad exemption defendants posit, it no 
doubt would have included similar language in section 1395(b).  That the 
Legislature did not include such language suggests it did not intend to establish a 
broad exemption rendering inapplicable any provision of the Business and 
Professions Code that could be classified as a “corporate practice” or 
“relationship” restriction.  It is unlikely the Legislature would have established 
such a far-reaching exemption without being more specific about the particular 
restrictions being overridden, especially given the specificity of the language it 
used in subdivision (a) of section 1395. 
 
Defendants’ broad claim is also inconsistent with other provisions of the 
Knox-Keene Act.  As noted above, among the types of commercial practice 
restrictions are restrictions on using trade names and having branch offices.  In 
separate provisions of the Knox-Keene Act, the Legislature has specified that 
California’s statutory restrictions on using trade names remain applicable to 
“specialized health care service plans” like VisionCare (§ 1366, subd. (b)), and 
that the restrictions in “the Business and Professions Code” on the number of 
branch offices remain applicable to licensed “professional[s] . . . who [are] 
employed by, or under contract to, a plan.”  (§ 1395, subd. (d).)  In still another 
                                              
9  
As amicus curiae California Medical Association (CMA) observes, the 
language the Legislature used in section 1395(b) closely tracks the language of 
decisional law on the corporate practice of medicine that existed when the 
Legislature passed the Knox-Keene Act.  (E.g., Pacific Health, supra, 12 Cal.2d at 
p. 158 [corporations may neither “employ[]” doctors “on a salary basis” nor 
“engage[]” them as “independent contractors”].) 
16 
 
provision, the Legislature has specified that “[e]xcept as specifically provided in 
[the Knox-Keene Act], nothing in [the Knox-Keene Act] shall be construed to 
limit the effect of the laws governing professional corporations, as they appear in 
applicable provisions of the Business and Professions Code, upon specialized 
health care service plans.”  (§ 1395, subd. (f), italics added.)  These provisions 
belie defendants’ claim that the Legislature “designed the Knox-Keene Act to 
render [all] corporate practice prohibitions inapplicable” either to Knox-Keene 
plans—especially specialized Knox-Keene plans like VisionCare—or to licensed 
professionals performing professional services for those plans.10  
 
Finally, defendants’ broad claim is inconsistent with the provisions of the 
Business and Professions Code.  The article of that code containing Business and 
Professions Code section 655 also contains provisions that prohibit specified 
licensed health care professionals from:  (1) making referrals for certain services if 
they have “a financial interest with the person or in the entity that receives the 
referral” (Bus. & Prof. Code, § 650.01, subd. (a)); (2) billing for “clinical 
laboratory service[s] not actually rendered by” them “or under” their “direct 
supervision,” without identifying the laboratory actually performing the service 
(Id., § 655.5, subd. (a)); (3) “employ[ing]” licensed hearing aid dispensers “for the 
purpose of fitting or selling hearing aids” (Id., §  655.2); and (4) billing for certain 
“cytologic services . . . not actually rendered by” them “or under” their “direct 
supervision.”  (Id., § 655.6, subd. (a).)  As to each of these prohibitions, the 
                                              
10  
That the Legislature addressed the various types of commercial practice 
restrictions in these separate provisions of the Knox-Keene Act also further 
undermines defendants’ view that although section 1395(b), on its face, addresses 
only one type of restriction—the prohibition against corporations employing or 
contracting with licensed professionals—it nevertheless addresses a different type 
of restriction, i.e., the prohibition against optometrists having landlord-tenant 
relationships with RDO’s. 
17 
 
Legislature has enacted an express, but limited, exception that applies under 
certain circumstances where a Knox-Keene plan is involved.11   
 
These express exceptions are significant for several reasons.  First, as 
amicus curiae CMA notes, they show that “where the Legislature want[s] to 
exempt health plans from” commercial restrictions in the Business and Professions 
Code, “it clearly knows how to do so.”  The absence of similar provisions 
establishing express exceptions to Business and Professions Code sections 655 and 
2556 makes defendants’ broad interpretation less plausible.  Second, the existence 
of these express exceptions is inconsistent with defendants’ view that section 
1395(b) renders, or was intended to render, all commercial practice restrictions in 
the Business and Professions Code inapplicable where Knox-Keene plans are 
involved.12  Were defendants correct, these express exemptions would be  
                                              
11  
See Bus. & Prof. Code, § 650.02, subd. (i) (“prohibition of [Bus. & Prof. 
Code, §] 650.01 shall not apply to health care services provided to an enrollee of 
a” Knox-Keene plan); id., § 655.5, subd. (e) (“[t]his section shall not apply to any 
person . . . who . . . contracts directly with a” Knox-Keene plan “if the services are 
to be provided to members of the plan on a prepaid basis and without additional 
charge or liability on account thereof”); id., § 655.2 (“[t]his section shall not apply 
to any physician and surgeon or medical corporation which contracts with or is 
affiliated with a comprehensive group practice” Knox-Keene plan); id., § 655.6, 
subd. (d)(1) (section does not apply to “[a]ny person who . . . contracts directly 
with a” Knox-Keene plan “if services are to be provided to members of the plan 
on a prepaid basis”). 
12  
Business and Professions Code sections 655.2, 655.6, and 650.02 were 
enacted after passage of the Knox-Keene Act.  As “expression[s] of legislative 
intent in a later enactment,” they are nonbinding “factor[s] that may be 
considered” in construing the “earlier enacted statute.”  (Cummins, Inc. v. Superior 
Court (2005) 36 Cal.4th 478, 492.)  Business and Professions Code section 655.5 
was enacted in 1970, before passage of the Knox-Keene Act.  It originally referred 
to the Knox-Mills Health Plan Act (Gov. Code, former § 12530 et. seq.), which 
formerly regulated health plans.  (Stats. 1970, ch. 658, § 1, p. 1282.)  In 1978, this 
reference was replaced with a reference to the Knox-Keene Act.  (Stats. 1978, ch. 
1161, § 18, p. 3592.) 
18 
 
superfluous.  The rules of statutory construction direct us to avoid, if possible, 
interpretations that render a part of a statute surplusage.  (See Fontana Unified 
School Dist. v. Burman (1988) 45 Cal.3d 208, 221; Stafford v. Realty Bond Service 
Corp. (1952) 39 Cal.2d 797, 805.)  Finally, it is significant that the Legislature, in 
expressly establishing Knox-Keene exceptions to commercial practice restrictions 
appearing in the same article of the code as Business and Professions Code section 
655, made those exceptions limited.  These express exceptions apply only to 
licensed professionals affiliated with “a comprehensive group practice” Knox-
Keene plan (Bus. & Prof. Code, § 655.2), or only to health care services “provided 
to an enrollee of a” Knox-Keene plan (id., § 650.02, subd. (i)) or to a “member[] 
of [a] plan on a prepaid basis” (id., §§ 655.5, subd. (e), 655.6, subd. (d)(1)).  That 
the Legislature carefully limited the Knox-Keene exemptions it expressly 
established casts substantial doubt on defendants’ broad claim that, through 
section 1395(b), the Legislature implicitly established (or intended to establish) an 
unlimited exception that renders the commercial relationship restrictions in 
Business and Professions Code section 655 (or Business and Professions Code 
section 2556) wholly inapplicable when Knox-Keene plans are involved. 
 
Indeed, the express exemptions discussed above highlight a practical 
problem with defendants’ position:  defining the scope of the exemption they 
assert.  As the People rightly ask, under defendants’ interpretation, “what happens 
to practitioners who provide services for both Knox-Keene plan members as well 
as the general public?”  Does the exemption defendants assert apply to services 
such practitioners provide to those who are not members of the Knox-Keene plan, 
or is it limited to services provided to plan “enrollee[s]” (Bus. & Prof. Code, 
§ 650.02, subd. (i)) or “members”?  (Id., §§ 655.5, subd. (e), 655.6, subd. (d)(1).)  
Does it apply to optometrists and RDO’s affiliated with any Knox-Keene plan, or 
only to those affiliated with “a comprehensive group practice” Knox-Keene plan?  
(Id., § 655.2.)  May an optometrist and RDO employed by a Knox-Keene plan,  
19 
 
neither of whom is regulated under the Knox-Keene Act, enter into a separate and 
otherwise-prohibited profit-sharing agreement just between the two of them?  As 
demonstrated by the limitations in the express statutory exemptions discussed 
above, these are the kinds of questions the Legislature would address in 
establishing a Knox-Keene exception to Business and Professions Code sections 
655 or 2556.  Defendants appear to argue that Business and Professions Code 
sections 655 and 2556 are wholly inapplicable to Knox-Keene plans and 
professionals who contract with or are employed by Knox-Keene plans.  However, 
given the limitations on the express exceptions the Legislature has enacted, we 
have no basis to accept defendants’ view that the Legislature implicitly 
established, or intended to establish, an unlimited exception.  Nor have we any 
basis for determining which of the possible limitations the Legislature would have 
chosen. 
 
Defendants argue that insofar as these express exceptions relate to statutory 
restrictions that were “first enacted . . .  after passage of the Knox-Keene Act” (see 
fn. 12, ante) they have “no bearing” on the issue here.  “Under such 
circumstances,” they contend, “it is not at all surprising that the statute would 
specifically address the new statute’s relationship with the Knox-Keene Act.”  By 
contrast, defendants assert, because Business and Professions Code sections 655 
and 2556 were enacted before the Knox-Keene Act, there is “no reason to expect” 
they would include language “addressing the effect of the Knox-Keene Act.” 
 
Defendants’ argument is suspect in light of several legislative actions in 
1979.  In 1975, when the Knox-Keene Act was passed, Business and Professions 
Code former section 3103 (renumbered as Business and Professions Code section 
3109 as of January 1, 2005), declared it to be “unprofessional conduct” for a 
licensed optometrist to “accept[] employment to practice optometry from . . . any 
company or corporation.”  (Stats. 1974, ch. 874, § 2, p. 1867.)  In 1979, the 
Legislature amended this statute to include a Knox-Keene exception, by providing 
that “[n]otwithstanding the provisions of this section or the provisions of any other 
20 
 
law, a licensed optometrist may be employed to practice optometry . . . by a health 
care service plan pursuant to” the Knox-Keene Act.  (Stats. 1979, ch. 788, § 6, p. 
2687.)  According to one legislative analysis, the purpose of this amendment was 
to “conform[]” Business and Professions Code former section 3103 “to language 
currently existing in” the Knox-Keene Act, and “to remove inconsistencies 
between certain statutory . . .  provisions regarding . . . employment of 
optometrists.”  (Assem. Subcom. on Health Personnel, analysis of Sen. Bill No. 
461(1979-1980 Reg. Sess.), as amended June 20, 1979.)   
 
The same year, the Legislature also amended both Business and Professions 
Code sections 655 and 2556, but those amendments did not include language 
referencing the Knox-Keene Act.  (Stats. 1979, ch. 975, § 1, p. 3339; Stats. 1979, 
ch. 653, § 9, p. 2012-2013.)  The 1979 amendment to Business and Professions 
Code section 655 significantly strengthened that section’s prohibitions by (1) 
deleting an exception for optometrists and RDO’s who do not refer patients and 
customers to each other, and (2) adding subsection (b) to make explicit that the 
statute not only prohibits optometrists from having proprietary relationships with 
RDO’s, it likewise prohibits RDO’s from having proprietary relationships with 
optometrists.  (Stats. 1979, ch. 975, § 1, p. 3339.)  Notably, the legislative history 
of the amendment contains no mention of the Knox-Keene Act, and no suggestion 
that Business and Professions Code section 655 is inapplicable where optometrists 
and RDO’s are employed by or contract with Knox-Keene plans.  On the contrary, 
several legislative analyses explained that the revised statute would prohibit any 
and all proprietary relationships between optometrists and RDO’s.  (Legis. 
Analyst, analysis of Assem. Bill No. 1125 (1979-1980 Reg. Sess.) as amended 
June 8, 1979; Sen. Democratic Caucus, analysis of Assem. Bill No. 1125 (1979-
1980 Reg. Sess.) as amended Sept. 5, 1979; Sen. Republican Caucus, analysis of 
Assem. Bill No. 1125 (1979-1980 Reg. Sess.) as amended Sept. 5, 1979; Dept. of 
Finance, Enrolled Bill Rep. on Assem. Bill No. 1125 (1979-1980 Reg. Sess.) Sept. 
18, 1979.)  Similarly, an opposition letter submitted on behalf of Cole National 
21 
 
Corporation argued that the revised statute “would prohibit any form of landlord-
tenant relationship” between RDO’s and optometrists “under any circumstances 
whatsoever.”  (Donald Brown, Advocation, Inc., letter to Assemblymember Daniel 
Boatwright re: Assem. Bill No. 1125 (1979-1980 Reg. Sess.) June 11, 1979, p. 1.)  
And, in a letter asking the Governor to veto the passed bill, Stanley Pearle, as 
Chairman of Searle Optical Inc., argued that the revised statute would “outlaw[] 
any landlord-tenant relationship between an optician and optometrist” and 
“exclude[]” opticians “from making available to their customers one-stop 
shopping for both optometric services and optical goods.”  (Stanley Pearle, letter 
to Governor Jerry Brown re: Assem. Bill No. 1125 (1979-1980 Reg. Sess.) Sept. 
19, 1979, pp. 1-2.)  These events undermine defendants’ assertion that there is “no 
reason to expect language in [Business and Professions Code] sections 655 
addressing the effect of the Knox-Keene Act.”  
 
Defendants also err in asserting that the People’s interpretation, by making 
part of section 1395(b) surplusage, violates our rules for construing statutes.  
According to defendants, because the second clause of section 1395(b)’s first 
sentence expressly authorizes plans to “employ, or contract with, any” licensed 
professional, reading the entire sentence as “only” an authorization to hire licensed 
professionals gives no effect to the sentence’s first clause, which provides that 
“[p]lans licensed under this chapter shall not be deemed to be engaged in the 
practice of a profession.”  (§ 1395(b).)  However, as noted above, the People’s 
interpretation gives meaning to the first sentence’s first clause by acknowledging 
that it establishes that in providing health care services through licensed 
professionals, Knox-Keene plans are not “engaged in the practice of a profession.”  
(§ 1395(b).)  Under California law, “[t]he practice of optometry is the performing 
or the controlling of any of the acts set forth in [Business and Professions Code] 
[s]ection 3041.”  (Bus. & Prof. Code, § 3070.)  Thus, without the first clause of 
section 1395(b), a Knox-Keene plan’s provision of optometric services through 
hired optometrists, though expressly authorized, would likely constitute the 
22 
 
practice of optometry.  Under the People’s interpretation, the provision’s first 
clause definitively establishes otherwise.13  Thus, the People’s interpretation gives 
meaning to that clause, just not the expansive meaning defendants proffer:  a broad 
exemption from all the otherwise applicable commercial-relationship restrictions 
in the Business and Professions Code. 
 
Like their broad claim regarding section 1395(b), defendants’ discussion of 
the statute’s specific application in this case suffers several problems.  Defendants 
are correct, and the People agree, that in light of the first clause of the statute— 
Knox-Keene plans “shall not be deemed to be engaged in the practice of a 
profession” (Ibid.)—VisionCare itself is not a “person licensed” as an optometrist 
within the meaning of Business and Professions Code section 655.  However, as 
here relevant, Business and Professions Code section 655, subdivisions (a) and (b), 
prohibit licensed optometrists from having a “landlord-tenant relationship” with 
RDO’s either “directly or indirectly.”  Although section 1395(b) would appear to 
preclude a finding that Pearle RDO and VisionCare’s optometrists “directly” have 
a prohibited “landlord-tenant relationship” within the meaning of Business and 
Professions Code section 655, it does not preclude a finding that they “indirectly” 
have such a prohibited relationship.14 
                                              
13  
That the Legislature could have decided otherwise is demonstrated by its 
enactment, only four years before passing the Knox-Keene Act, of a statute 
providing:  “The offering and operation by a medical corporation of a health care 
service plan . . . shall be the practice of medicine by such corporation, and is 
hereby authorized.”  (Stats. 1971, ch. 1467, § 1, p. 2897.)  
14  
This case comes to us upon the trial court’s issuance of a preliminary 
injunction regarding advertising, and the trial court has yet to decide whether the 
relationship between Pearle RDO and VisionCare’s optometrists violates Business 
and Professions Code section 655.  Nor has the trial court decided whether Pearle 
RDO has violated Business and Professions Code section 2556’s prohibitions 
against “furnish[ing] the services of . . . an optometrist” and “directly or indirectly 
employ[ing] or maintain[ing]” an optometrist “on or near the premises for optical 
dispensing.”  We express no view on these questions, which are beyond the scope 
of the issue on which we granted review.  Because we do not answer these 
23 
 
 
Nothing in section 1395(b) supports defendants’ contrary position.  As 
defendants acknowledge, that section authorizes Knox-Keene plans “to ‘contract 
with’ professionals to provide professional services.”  (Italics added; see § 1395(b) 
[plans may contract with licensed professionals “to deliver professional 
services”].)  Similarly, section 1395(b) provides that a licensed professional may 
not be disciplined for contracting “as a provider of professional services” with a 
plan.  Pearle RDO’s rental agreement with VisionCare does not constitute a 
contract “to deliver professional services,” and Pearle RDO, as VisionCare’s 
landlord, is not acting “as a provider of professional services.”15  (§ 1395(b).)  
                                                                                                                                      
 
questions, we also cannot, and do not, address defendants’ argument that because 
Business and Professions Code sections 655 and 2556 do not prohibit the 
arrangements at issue here, the latter’s prohibition against RDO’s advertising “the 
furnishing of” an optometrist’s services “must be read” to allow Pearle RDO to 
advertise those arrangements, and that Pearle RDO therefore has not violated that 
prohibition. 
15  
Our discussion assumes that RDO’s, which are “registered” with the 
Division of Licensing of the Medical Board (Bus. & Prof. Code, § 2550), 
otherwise qualify under Health and Safety Code section 1395(b) as 
“professional[s] licensed pursuant to Division 2 (commencing with Section 500) 
of the Business and Professions Code.”  (Italics added.)  As already noted, the 
People concede that section 1395(b) authorizes Knox-Keene plans to “employ or 
contract with RDO’s.”  We also note that the statutory chapter on RDO’s appears 
in the division of the Business and Professions Code mentioned in Health and 
Safety Code section 1395(b); that Business and Professions Code section 655 
refers to persons “licensed” under the provisions relating to RDO’s; and that 
Business and Professions Code section 23.7 states that “[u]nless otherwise 
expressly provided, ‘license’ means license, certificate, registration, or other 
means to engage in a business or profession regulated by this code.”     
 
Our discussion also assumes that, as the People assert, VisionCare does not 
provide VisionCare’s subscribers with “eyewear benefits under the plan,” and that 
Pearle RDO’s only contractual arrangement with VisionCare is the lease 
agreement.  Defendants do not contest this assertion.  Nor did they oppose the 
People’s request for judicial notice of a sample membership contract VisionCare 
filed with the DMHC, which indicates that VisionCare’s plan does not cover the 
costs of frames, lenses or contacts.  Given the facts, we have no occasion to 
discuss the application of these statutes where a Knox-Keene plan employs or 
contracts with both optometrists and RDO’s to provide professional services. 
24 
 
Although section 1395(b) expressly authorizes Knox-Keene plans to employ 
licensed optometrists to provide professional services, it does not provide that 
optometrists so employed may operate without regard to other professional 
restrictions.  Moreover, the Knox-Keene Act elsewhere provides that Knox-Keene 
plans “shall employ and utilize allied health manpower for the furnishing of 
services to the extent permitted by law.”  (§ 1367, subd. (f), italics added.)  In 
short, with respect to Knox-Keene plans, section 1395(b) removes only one 
preexisting restriction on health care licensed professionals:  the ban on 
employment by a corporation other than a medical corporation.  Nothing in its 
language establishes or suggests that it removes other restrictions on the 
relationships such professionals may have, such as the prohibition against 
“directly or indirectly” having a landlord-tenant relationship with an RDO.  (Bus. 
& Prof. Code, § 655.)  A licensed professional working for a Knox-Keene plan 
who is disciplined for having such a prohibited relationship is not being 
disciplined for that employment, but for additionally having a prohibited 
relationship.   
 
Defendants’ discussion of Business and Professions Code section 2556 
fares no better.  Again, defendants are correct that, in light of Health and Safety 
Code section 1395(b), VisionCare itself is not an “optometrist” within the meaning 
of Business and Professions Code section 2556.  However, contrary to defendants 
claim, this fact does not establish that Pearle RDO does not “directly or indirectly 
employ or maintain on or near the premises for optical dispensing . . . an 
optometrist” within the meaning of Business and Professions Code section 2556.   
 
Defendants’ contrary analysis of the statutory language is unpersuasive.  
Defendants argue that “the second clause of [section] 1395(b) plainly authorizes 
relationships like VisionCare’s,” and that whatever the phrase “indirectly employ 
or maintain on or near the premises” means (Bus. & Prof. Code, § 2556), it 
“cannot apply to optometric services provided by a Knox-Keene plan, pursuant to 
express statutory language allowing the plan to provide such services and 
25 
 
exempting it from restrictions applicable to professionals.”  Defendants are 
incorrect; as explained above, section 1395(b) authorizes Knox-Keene plans to 
contract with licensed professionals “to deliver professional services,” not, as 
defendants contend, “to lease space in” RDO’s retail optical stores.  As a landlord, 
Pearle RDO simply is not acting “as a provider of professional services.”  (§ 
1395(b).)   
 
Finally, we reject defendants’ assertion that because Business and 
Professions Code sections 655 and 2556 “carry[] misdemeanor penalties,” we 
should apply the rule that directs courts to resolve ambiguities in penal statutes in 
the defendant’s favor.  That rule “ ‘applies only if the court can do no more than 
guess what the legislative body intended.’ ”  (People v. Avery (2002) 27 Cal.4th 
49, 58.)  It does not apply “ ‘unless two reasonable interpretations of the same 
provision stand in relative equipoise’ ” (ibid.), i.e., that “the defendant’s proposed 
interpretation is at least as plausible as that of the People.  [Citations.]”  (People v. 
Hammer (2003) 30 Cal.4th 756, 771, fn. 13.)  Because, for the reasons stated 
above, defendants’ interpretation is not equally plausible, the rule is inapplicable.16 
                                              
16  
In supporting defendants’ interpretation, amicus curiae California 
Association of Health Plans (CAHP) relies in part on a provision defendants do 
not mention:  section 1395, subdivision (c), which provides that a licensed “health 
care service plan . . . may directly own, and may directly operate through its 
professional employees or contracted licensed professionals, offices and 
subsidiary corporations . . . as are necessary to provide health care services to the 
plan’s subscribers and enrollees.”  By its terms, that provision does not apply here 
because VisionCare, the specialized Knox-Keene plan, does not “directly own” 
and “directly operate” Pearle RDO’s retail stores.  (§ 1395, subd. (c).)  Given this 
fact, we express no opinion on the People’s view that the provision is inapplicable 
for another reason:  because it mentions only “health care service plan[s]” (§ 1395, 
subd. (c)), and therefore does not apply to specialized health care service plans 
like VisionCare. 
26 
 
2.  Extrinsic Sources Do Not Support Defendants’ Interpretation. 
 
 
Although asserting that the plain language of section 1395(b) is dispositive, 
defendants also rely heavily on various extrinsic sources.  As explained below, 
defendants’ discussion of these sources is unpersuasive.   
a.  Prior Administrative Construction 
 
Defendants assert that “[t]he agencies charged with administering the 
Knox-Keene Act have applied [defendants’] understanding of the Act for almost 
two decades.”  In support of their argument, defendants rely principally on  
a petition the Attorney General filed, as counsel for the California Board of 
Optometry, with the Federal Trade Commission (FTC) in 1989, and on internal 
memoranda of the Medical Board’s Division of Licensing and the Department of 
Corporations (DOC), which was originally charged with administering the Knox-
Keene Act.   
 
Defendants’ reliance on these documents is unavailing.  How much, if any, 
“deference” we give the type of administrative interpretation defendants cite 
depends on “a complex of factors material to the substantive legal issue before 
[us], the particular agency offering the interpretation, and the comparative weight 
the factors ought in reason to command.”  (Yamaha Corp. of America v. State Bd. 
of Equalization (1998) 19 Cal.4th 1, 12.)  Several of the relevant factors indicate 
that deference is unwarranted here.  First, the FTC petition and the internal agency 
memoranda were not “contemporaneous with” enactment of the relevant statutes 
(id. at p. 13); they were all prepared years later.  Second, none of these documents 
discusses the relevant statutory language or reflects “careful consideration” of the 
precise issue before us.  (Ibid.)  Third, the internal memoranda, which are 
essentially advice letters prepared by individual staff members, are not entitled to 
the deference we afford “ ‘a regulation adopted after public notice and 
comment.’ ”  (Ibid.)  Finally, the issue here is the construction of statutes, and we 
generally “are less inclined to defer to an agency’s interpretation of a statute than 
27 
 
to its interpretation of a self-promulgated regulation.  [Citation.]”  (Bonnell v. 
Medical Board (2003) 31 Cal.4th 1255, 1265.)  Here, we have no reason to believe 
the agencies in question have a “ ‘comparative interpretive advantage over the 
courts’ ” in interpreting the relevant statutes.  (Yamaha, supra, 19 Cal.4th at p. 12.)  
For these reasons, the documents defendants cite do not persuade us to adopt 
defendants’ interpretation.17 
 
 Nor are we persuaded by defendants’ more general assertion that since 
1986, “California regulators” have either expressly approved, or failed to object to, 
the operation of specialized Knox-Keene vision care plans affiliated with optical 
companies that are RDO’s.  As the People point out, “no state agency has ever 
promulgated a regulation or issued a formal opinion interpreting the [Knox-Keene] 
Act to create an exemption to Business and Professions Code sections 655 or 
2556.”  And, as we stated over 70 years ago in rejecting a similar argument by a 
dentist who sought to overturn his suspension for aiding the unlawful corporate 
practice of dentistry, “[d]elayed action on the part of those who are charged with 
the execution of laws will not be permitted to annul the law.  It may be considered 
by the court as a reason for the mitigation of punishment, but the judicial 
department is not absolutely bound to regard it.”18  (Painless Parker v. Board of 
Dental Examiners (1932) 216 Cal. 285, 299 (Painless Parker).)  Ultimately, the 
                                              
17  
We also note that, contrary to defendants’ claim, none of the cited 
documents states that either the Knox-Keene Act in general or section 1395(b) in 
particular makes commercial practice restrictions inapplicable to specialized 
Knox-Keene plans.  However, in light of the factors discussed above, we need not 
detail the reasons why our reading of these documents differs from defendants’. 
18  
Regarding punishment—imposition of fines and penalties—defendants 
state that they have asserted “estoppe[l]” in the trial court, and that the issue “is 
not implicated here.” 
28 
 
interpretation of a statute is a question of law for the courts to decide.19  (Reno v. 
Baird (1998) 18 Cal.4th 640, 660.) 
b.  Legislative History 
 
Defendants rely in part on the legislative history of the Knox-Keene Act, 
which was enacted through passage of Assembly Bill No. 138 (1975-1976 Reg. 
Sess.).  They cite statements in an Assembly third reading analysis that the Knox-
Keene Act “opens licensure to for-profit organizations which were prohibited 
under earlier registration procedure,” and that “regulating performance regardless 
of the corporate status is seen as a more logical way to control abuses.”  (Assem. 
third reading analysis, Assem. Bill No. 138 (1975-1976  Reg. Sess.) as amended 
Apr. 17, 1975.)  
 
Contrary to defendants’ assertion, these statements provide little, if any, 
support for defendants’ broad interpretation.  To the extent they explain that the 
Knox-Keene Act permits for-profit corporations to deliver health care services, 
these statements are fully consistent with the People’s view that section 1395(b) 
simply exempts Knox-Keene plans from the rule that otherwise prohibits for-profit 
corporations from employing licensed health care professionals to provide health 
care services.  The same is true regarding the comment about the benefits of 
regulation, viewed in context.  The Assembly third reading analysis explained that, 
although existing law “prohibited” licensing of “for-profit organizations,” such 
entities were “find[ing] their way into the system via subsidiary for-profit 
                                              
19  
We also note that, according to documents submitted by amici curiae 
Melvin Snow and Sabrina Hughes, as early as February 2002, the same month the 
Attorney General filed this action, the Medical Board rejected several RDO 
applications based on its view that Business and Professions Code sections 655 
and 2556 preclude an RDO from subleasing space within its retail store to a 
specialized Knox-Keene plan so that optometrists employed by the Knox-Keene 
plan may provide optometric services to plan members at those locations.  Thus, 
there is reason to question defendants’ assertion that “[t]he present lawsuit is the 
first manifestation . . . of any official objection to the legality of th[e] 
arrangements” at issue here. 
29 
 
management and supply companies to a nonprofit corporate shell.”  (Assem. third 
reading analysis, Assem. Bill No. 138 (1975-1976  Reg. Sess.) as amended April 
17, 1975.)  “Consequently”—i.e., because for-profit entities were finding ways to 
avoid existing prohibitions—“regulating performance regardless of the corporate 
status [was] seen as a more logical way to control abuses” than prohibiting for-
profit entities from providing health care services.  (Ibid.)  Again, this discussion 
is fully consistent with the People’s view that section 1395(b) simply exempts 
Knox-Keene plans from the rule against for-profit corporations employing 
licensed health care professionals.  It does not indicate a more expansive intent to 
eliminate all other restrictions on the relationships that licensed health care 
professionals may have.20   
 
Indeed, a complete review of the Knox-Keene Act’s voluminous legislative 
history does not support defendants’ broad interpretation of section 1395(b) and 
generally supports the People’s more limited reading of that section.  The 
legislative analyses consistently stressed two key aspects of the Knox-Keene Act:  
“a new licensing and [expanded] regulatory structure governing health care service 
plans” and a “transfer” of regulatory authority “from the Attorney General to the  
                                              
20  
Defendants also cite the statement at an April 1974 press conference of 
former Assemblymember John Knox, who cosponsored the Knox-Keene Act.  The 
statement, which did not identify the proposed legislation by bill number, 
apparently related not to Assembly Bill No. 138, which was introduced in 
December 1974, but to Assembly Bill No. 3385 (1973-1974 Reg. Sess.), which 
dealt with the same subject and which former Assemblymember Knox introduced 
the day before the press conference.  There were many similarities between 
Assembly Bill No. 3885, as introduced, and Assembly Bill No. 138, but there were 
also many differences, including one of particular note here.  Section 1395(b), as 
proposed in Assembly Bill No. 3885, apparently would have applied only to 
licensed plans providing a broad range of “basic health care services,” and not to 
“ ‘specialized’ ” plans providing services in “a single specialized area of health 
care such as optometry . . . .”  (Assem. Bill No. 3885 (1973-1974 Reg. Sess.) as 
introduced Apr. 18, 1974, pp. 6-7, 24.)  In any event, nothing in cited statement is 
inconsistent with the People’s interpretation.  
30 
 
Department of Corporations.”  (Assem. Com. on Health, analysis of Assem. Bill 
No. 138 (1975-1976 Reg. Sess.) as amended Apr. 17, 1975, p. 1.)  Some, but not 
all, of the analyses also briefly noted, with little or no discussion, that the Knox-
Keene Act would change existing law by allowing for-profit corporations to 
operate as licensed health care services plans.  (Id. at pp. 7-8; Assem. Off. of 
Research, third reading analysis of Assem. Bill No. 138 (1975-1976 Reg. Sess.) as 
amended Sept. 2, 1975, pp. 1-2; Assem. Com. on Ways & Means, analysis of 
Assem. Bill No. 138 (1975-1976 Reg. Sess.) as amended Apr. 17, 1975, p. 2; Sen. 
Com. on Health & Welfare, analysis of Assem. Bill No. 138 (1975-1976 Reg. 
Sess.) as amended June 27, 1975, p. 2.)  However, nowhere in the limited 
discussion of this change is there any mention of an intent to sweep away all other 
restrictions on commercial relationships in the Business and Professions Code.  
Nor is there any discussion of the pros and cons of maintaining or creating an 
exemption from any other relationship restriction.  Instead, consistent with the 
People’s interpretation, the relevant discussion indicates no more than an intent to 
establish an exception to only one such restriction:  the prohibition against for-
profit corporations employing licensed health care professionals to provide health 
care services.  Had the Legislature intended to enact the broad and sweeping 
exemption defendants assert, the legislative history would, no doubt, contain some 
mention of that intent.  
c.  Statutory Purpose 
 
Defendants argue that their interpretation is strongly supported by the 
purposes of the Knox-Keene Act, specifically, to “preserv[e] the quality of care,” 
to “ensur[e] easy access to care,” and to “reduc[e] health care costs through 
competition.”  Defendants assert that adopting the People’s view “would cause 
serious harm to consumers, without any offsetting benefit.”  In making their 
argument, defendants rely principally on a 1986 finding by the FTC, based largely 
on earlier studies, that because “commercial practice” restrictions “increase 
prices” and thus “reduc[e] the frequency with which consumers obtain vision 
31 
 
care,” they “decrease the overall quality of care” without “provid[ing] offsetting 
quality-related benefits.”  (54 Fed. Reg. 10286 (Mar. 13, 1989).)  Defendants also 
rely on a 1982 finding by the DCA, based on FTC data, that California’s 
“commercial practice restrictions [would] cost California consumers $102 million 
in 1983.”  (DCA Rep., supra, Executive Summary, p. i.)  Defendants argue that, in 
light of these findings, their interpretation would promote the Knox-Keene Act’s 
purposes, whereas the People’s interpretation would defeat those purposes by 
“inflict[ing] sharply higher costs, reduced services, and lower-quality care on 
California consumers.”  
 
The premise of defendants’ argument—that commercial practice 
restrictions increase prices and reduce the overall quality of care by decreasing the 
frequency of visits—appears to be open to question.  The People, citing several 
analyses and scholarly criticisms, challenge not only the findings of the FTC and 
the DCA, but also the methodology and objectivity of the earlier studies on which 
those findings were based.  The People also argue that even were these underlying 
studies correct when done, “the almost 30-year old . . . data” from those studies 
and the FTC’s finding based on that data “have little relevance to California’s 
current vision care market.”     
 
 
This policy debate was before our Legislature in 1979 when it strengthened 
Business and Professions Code section 655 (see pp. 20-21, ante), and again in 
1983 and 1985 when it rejected proposals to repeal some or all of the prohibitions 
in that section and in Business and Professions Code section 2556.  The relevant 
legislative history demonstrates that defendants’ corporate predecessors 
participated in those proceedings, opposing the 1979 legislation and supporting the 
unsuccessful repeal proposals based on the same arguments and studies defendants  
32 
 
offer here.21  Thus, defendants are now inviting us to resolve in their favor an old 
policy debate based on arguments and studies that have, thus far, failed to move 
the Legislature.  We decline the invitation.  In light of the legislative history and 
the contrary studies the People cite—one of which was published in 1995—we 
have no basis for concluding that the Legislature agrees with defendants’ view or 
that the findings on which defendants rely were accurate when made more than 20 
years ago, are accurate now, or are now or ever were applicable to California’s 
vision care market.22  Instead, we leave this policy debate with the body to which 
it rightly belongs:  the Legislature, which has “the ability to gather empirical 
evidence, solicit the advice of experts, and hold hearings at which all interested 
parties may present evidence and express their views.”  (Foley v. Interactive Data 
Corp. (1988) 47 Cal.3d 654, 694, fn. 31.)   
                                              
21  
E.g., Donald Brown, Advocation, Inc., letter to Assemblymember Daniel 
Boatwright re: Assem. Bill No. 1125 (1979-1980 Reg. Sess.) June 11, 1979, p. 1 
[arguing for Cole National Corporation that the strengthened statute would be 
“anti-competitive and anti-consumer” and would “caus[e] inconvenience and 
potentially higher prices to” consumers]; Stanley Pearle, letter to Governor Jerry 
Brown re: Assem. Bill No. 1125 (1979-1980 Reg. Sess.) Sept. 19, 1979, pp. 1-2 
[arguing for Searle Optical Inc., that the strengthened statute would “prevent[] 
aggressive competition in [California’s] optical business,” would result in “higher 
prices for California consumers,” and would “not [be] in the best interest of the 
consuming public”]; Assem. Health Com., analysis of Assem. Bill No. 1926 
(1983-1984 Reg. Sess.) as amended May 4, 1983, pp. 2-3 [proposed repeal of Bus. 
& Prof. Code, §§ 655 and 2556 “was introduced at the request of Pearle Vision 
Centers” and was based on DCA and FTC data]; Assem. Health Com., analysis of 
Assem. Bill No. 1217 (1985-1986 Reg. Sess.) as amended Mar. 28, 1985, p. 2 
[proposed repeal was “sponsor[ed]” by “Pearle Health Services,” which “argue[d] 
that restrictions in existing law on vision care services are anti-competitive and 
reduce patient access to care”]. 
22  
Nor can we conclude that the FTC findings are, or ever were, valid as to 
ophthalmologists, given the FTC’s statement that the regulation it had 
promulgated “was never intended to address commercial practices by 
ophthalmologists,” and that “there is little evidence concerning” such practices. 
(54 Fed. Reg. 10300, fn. 164 (Mar. 13, 1989).)  Yet defendants’ interpretation of 
section 1395(b) would apply equally to such professionals. 
33 
 
 
Defendants also assert that their interpretation is consistent with another 
purpose of the Knox-Keene Act:  to “prevent[] commercial influence” on 
professional judgment through “comprehensive regulatory oversight rather than by 
structural prohibitions on with whom [a Knox-Keene] plan may affiliate.”  In 
making this argument, defendants first assert that the “corporate practice 
restrictions barring for-profit corporations from the health care field [are] 
expressly based on concern” that professional judgment may be influenced by 
“ ‘the profit motive of the corporation employer,’ ” and that the Legislature 
“expressly abolished this bar for Knox-Keene companies, based on the judgment 
that in the Knox-Keene context it [is] ‘more logical . . . to control abuses’ by 
‘regulating performance’ pursuant to a comprehensive regulatory scheme.”  
Defendants then assert that because the “concerns cited as the basis for [Business 
and Professions Code sections] 655 and 2556 are almost identical to those which 
underlie corporate practice prohibitions,” we should construe Health and Safety 
Code section 1395(b) also to abolish the prohibitions in Business and Professions 
Code sections 655 and 2556 where Knox-Keene plans are involved.  According to 
defendants, “[i]n view of [the Knox-Keene Act’s] express focus on protecting 
professional independence, no purpose (other than protecting the business interests 
of optometrists and reducing the availability of vision care to California 
consumers) would be served by applying [Business and Professions Code 
sections] 655 and 2556 in the Knox-Keene context.”  
 
We believe that we should leave to the Legislature the decision whether the 
justification for exempting Knox-Keene plans from the prohibition against 
employing optometrists also warrants an exemption from the prohibitions of 
Business and Professions Code sections 655 and 2556.  To paraphrase one of our 
prior decisions, “[t]he question before us is, of course, one of statutory 
construction and we do not decide whether the Legislature in [1975] should have 
[established this exemption] or whether it should do so now.  That is a public 
policy issue properly left to the Legislature. . . . ‘Our holding [must be] based on 
34 
 
the [Knox-Keene] Act as it is written, not on a different, perhaps broader, version 
that could have been, or still may be, enacted.’  [Citation.]  Public policy, 
however, is a relevant, albeit secondary, consideration for our decision in the 
present case.  We are asked in this case to decide whether the Legislature intended 
to abolish a well-established legal doctrine that raises significant public policy 
considerations.  We are not persuaded the Legislature would have silently, or at 
best obscurely, decided so important and controversial a public policy matter and 
created a significant departure from the existing law.”  (In re Christian (1994) 7 
Cal.4th 768, 782.) 
 
For similar reasons, we reject defendants’ policy arguments for deferring to 
what they claim has been the “accepted [administrative] practice” for “nearly two 
decades.”  According to defendants, “[i]t is extremely important for [Knox-Keene] 
plans to be able to develop their products and plans knowing that there is but a 
single set of state law standards they must satisfy, and with the understanding that 
actions approved by their designated state regulator—the DMHC—are permissible 
and may be undertaken with confidence.”  Defendants assert that by now adopting 
the People’s interpretation, we would frustrate this need for certainty—and thus 
“defeat the purposes of the Knox-Keene Act”—by “rais[ing] the specter of later 
intervention by the Attorney General to declare unlawful (and seek penalties for) 
activity and structures long approved by the DOC and DMHC.”  Defendants also 
more broadly assert that adopting the People’s interpretation will “deter 
investment in California, by undermining confidence in the stability of the legal 
structures under which businesses operate, and contributing to a perception that 
California’s legal climate is unfriendly to business and makes this State a risky 
place to invest or operate.”  These arguments, which are unrelated to the language 
of the governing statutes, should be directed to the Legislature.  As stated earlier,  
we must take the law as it is written, and “[d]elayed action on the part of those 
who are charged with [its] execution . . . will not be permitted to annul [it].”  
(Painless Parker, supra, 216 Cal. at p. 299.)  Thus, we leave it to the Legislature 
35 
 
to determine whether defendants’ policy arguments merit modification of the 
law.23 
DISPOSITION 
 
For the reasons discussed above, we affirm the judgment of the Court of 
Appeals and remand the case for further proceedings consistent with this opinion. 
 
 
 
 
 
 
 
 
 
CHIN, J. 
 
WE CONCUR: 
GEORGE, C.J. 
KENNARD, J. 
BAXTER, J. 
MORENO, J. 
CORRIGAN, J. 
IKOLA, J. ∗ 
 
                                              
23  
Amici curiae John Knox and CAHP make the related argument that in 
passing the Knox-Keene Act, the Legislature divested the Attorney General of 
authority to challenge a statutory interpretation that the director of the DMHC 
renders in acting on an application for a Knox-Keene license, and of jurisdiction to 
bring this action.  Because these issue are beyond the scope of the issue on which 
we granted review, we decline to address them. 
∗ 
Associate Justice, Court of Appeal, Fourth Appellate District, Division 
Three, assigned by the Chief Justice pursuant to article VI, section 6 of the 
California Constitution. 
 
 
See last page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion People v. Cole 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 113 Cal.Appp.4th 955 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S121724 
Date Filed: June 12, 2006 
__________________________________________________________________________________ 
 
Court: Superior 
County: San Diego 
Judge: J. Richard Haden 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
Bill Lockyer, Attorney General, Manuel M. Medeiros, State Solicitor General, Andrea Lynn Hoch and 
James Humes, Chief Assistant Attorney General, Albert Norman Shelden, Acting Assistant Attorney 
General, Robert M. Foster, Susan A. Ruff, Linda K. Schneider, Sherry L. Ledakis, Antoinette Cincotta, 
Jennifer L. Weck and Diane de Kervor, Deputy Attorneys General, for Plaintiff and Appellant. 
 
Catherine I. Hanson and Astrid G. Meghrigian for California Medical Association as Amicus Curiae on 
behalf of Plaintiff and Appellant. 
 
Wilke, Fleury, Hoffelt, Gould & Birney, William A. Gould, Jr., Alan G. Perkins and Megan Lewis for 
California Optometric Association as Amicus Curiae on behalf of Plaintiff and Appellant. 
 
Walkup, Melodia, Kelly & Echeverria and Matthew D. Davis for Melvin Snow and Sabrina Hughes as 
Amici Curiae on behalf of Plaintiff and Appellant. 
 
Robert E. Moss, Jr., and Stuart Thompson for Vision Services Plan as Amicus Curiae on behalf of Plaintiff 
and Appellant. 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Jones, Day, Reavis & Pogue, Jones Day, Thomas R. Malcolm, Richard J. Grabowski, Daniel H. Bromberg, 
Amar D. Sarwal, Dominick V. Freda and Elwood Lui for Defendants and Respondents. 
 
Timothy J. Murris and Robert Pitofsky as Amici Curiae on behalf of Defendants and Respondents. 
 
Charles D. Conner for National Optometric Association as Amicus Curiae on behalf of Defendants and 
Respondents. 
 
John T. Knox as Amicus Curiae on behalf of Defendants and Appellants. 
 
 
 
 
 
 
Page 2 – S121724 – counsel continued 
 
Attorneys for Respondent: 
 
K & R Law Group, Peter Roan and James F. Novello for California Association of Health Plans as Amicus 
Curiae on behalf of Defendants and Appellants. 
 
Morrison & Foerster, Michael M. Carlson, Lori A. Schechter and Tiffany Cheung for National Association 
of Optometrists and Opticians as Amicus Curiae on behalf of Defendants and Appellants. 
 
No appearance for Defendants and Respondents. 
 
 
 
 
 
 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Jennifer L. Weck 
Deputy Attorney General 
110 West A Street, Suite 1100 
San Diego, CA  92101 
(619) 645-2653 
 
Elwood Lui 
Jones Day 
555 South Flower Street, Fiftieth Floor 
Los Angeles, CA  90071-2300 
(213) 489-3939