Court Opinion

ID: 4656433
Source: CourtListenerOpinion
Date Created: 2021-02-02 00:02:00.591223+00
Date Added: 2024-06-11T08:00:52.343325
License: Public Domain

Filed 1/29/21
                      CERTIFIED FOR PUBLICATION

         IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         FIRST APPELLATE DISTRICT

                                DIVISION THREE

    CALIFORNIA ADVOCATES FOR
    NURSING HOME REFORM et al.,                   A158035
           Plaintiffs and Appellants,
    v.                                            (Alameda County
    TOMÁS J. ARÁGON, as Director,                 Super. Ct. No. RG 12653326)
    etc.,
           Defendant and Respondent.

           California law requires a license from the California Department
of Public Health (CDPH) in order to operate or manage a skilled
nursing facilities (SNF). A licensee, however, may subsequently enter
into an agreement with a management company for the management
company to operate or manage the licensee’s SNF. In this
circumstance, the management company does not itself hold the license
to operate the SNF, but is subject to an application and approval
process with CDPH in order to manage the SNF.1
           In the case before us, the parties requested the trial court
answer, as a threshold matter, a specific legal question: does CDPH
approval of unlicensed management companies to operate licensed
SNFs violate state or federal law? The trial court concluded it did not.

1     In this opinion, we refer to such management companies as
“unlicensed management companies.”

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Plaintiffs now appeal a judgment of dismissal following entry of that
order, arguing that these management agreements are illegal because
the licensee (not an unlicensed management company) must operate
and manage the SNF. We affirm.
           FACTUAL & PROCEDURAL BACKGROUND
      Plaintiffs non-profit California Advocates for Nursing Home
Reform (CANHR), Gail Dawson and Java Williams (collectively
plaintiffs) filed the operative third amended complaint (Complaint) in
January 2015. The named defendants were Dr. Ron Chapman, in his
capacity as then-director of the CDPH (CDPH Director);2 Country Villa
Service Corp. (CVSC); Country Villa East L.P., C.V. Westwood Single
Purpose Entity, LLC; and Steven Reissman, individually and as trustee
of the Reissman Family Trust (collectively the Country Villa
defendants).
      Plaintiff CANHR is a non-profit organization “dedicated to
improving the care, quality of life, and choices for California’s long term
care customers” with “[o]ne or more members” who are residents and
former residents of facilities operated and managed by CVSC and the
Country Villa defendants. Plaintiff Dawson is the administrator of the
estate of Minnie Bell Green, and plaintiff Williams is the successor in
interest to her mother Suzanne Williams. Prior to their deaths, both
Green and Suzanne Williams were residents at a SNF operated by
CVSC.
      The Country Villa defendants are licensed by the CDPH to
operate SNFs in California. The Complaint attached a Management

2     Dr. Chapman was replaced by Dr. Karen Smith as CDPH
Director shortly after the filing of the Complaint. Dr. Smith was
replaced by Dr. Tomás Aragón in January 2021.

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Services Agreement between the County Villa defendants and CVSC, a
corporation engaged in the nursing home business as a management
company, to operate a SNF in North Hills, California. This
Management Services Agreement is allegedly representative of similar
agreements executed by CVSC to operate other SNFs in California.
      These management agreements are “the principal subject of this
action.” Specifically, plaintiffs assert that state law requires that a
SNF be operated and managed by the entity that holds the license to
operate the SNF, not by a management company. Accordingly,
plaintiffs allege that CDPH’s approval of applications and agreements
for companies like CVSC to operate and manage licensed SNFs violates
state law.
      The Complaint asserts five causes of action. The first cause of
action, against only the CDPH Director, seeks declaratory relief that
management arrangements transferring the day-to-day operation of
SNFs to unlicensed management companies violate California law and
are invalid as in conflict with federal law. The second and third causes
of action, against all defendants, seek declaratory relief that
management arrangements providing fees that exceed the cost of
providing management services, plus a reasonable allowance for profit,
violate California’s Unfair Competition Law (Bus. & Prof. Code §
17200) (UCL)) and other state law. The fourth cause of action, against
only the CDPH Director, seeks injunctive relief to prohibit the CDPH
Director from approving any management agreement, except those
submitted by a proposed licensee seeking to acquire ownership of a
SNF operation, and to require the CDPH Director to give notice that
any previously approved management agreements are invalid. The

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fifth cause of action seeks injunctive relief, accounting, and restitution
to redress the alleged overpayment of management fees, which “are in
reality distributions of profit from [the licensees] and bear no relation
to the cost of providing management services by CVSC and Reissman.”
      The trial court sustained defendants’ demurrers without leave to
amend on the ground that plaintiffs lacked standing. Plaintiffs
appealed. As to the second, third, and fifth causes of action, we
affirmed as the Complaint offered “only the barest allegations” that
plaintiffs’ claimed injuries were caused by the management agreements
or by the fees charged under those agreements, and thus failed to
establish plaintiffs’ standing. (California Advocates for Nursing Home
Reform v. Smith (Aug. 9, 2016, A145267) [nonpub. opn.] at p. 5.) As to
the first and fourth causes of action against the CDPH Director, we
reversed: “Plaintiffs’ complaint presents a clear-cut question of
whether the department may authorize an unlicensed entity to operate
skilled nursing facilities, and there would be a strong public interest in
prohibiting it from doing so if such authorization were determined to
violate state law.” (Id. at pp. 3.) We noted that the merits of this legal
question had not been decided in the trial court and, accordingly,
determined that plaintiffs had standing on the first and fourth causes
of action to determine whether CDPH “is complying with its statutory
obligations in this respect.” (Id. at pp. 3-4.)
      On remand, the parties requested that this “clear-cut question”
be addressed by the trial court as a threshold matter. The trial court
did so in an order dated February 5, 2018, concluding that approval of
unlicensed management companies to operate licensed SNFs does not
violate state or federal law. The order made it clear that the question

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of whether a particular agreement (such as the Management Services
Agreement attached to the Complaint) violates state and federal law
was not contemplated or reached.
      The CDPH Director moved for summary judgment on the
grounds that plaintiffs lacked standing to challenge the individual
management agreements and that the remaining causes of action did
not allege that any individual management agreement violated any
law. The trial court granted the motion. It concluded that the discrete
issue raised in the first cause of action (legality of management
agreements to operate a licensed SNF) had been determined against
plaintiffs in the February 5, 2018 order, and that the underlying
misconduct alleged in the fourth cause of action (approval of such
management agreements) was based on the failed first cause of action.
The trial court noted that its February 5, 2018 order explicitly did not
reach the issue of whether approval of a specific management
agreement “might be unlawful because it improperly eviscerated the
responsibilities of the licensee” and explained that such a claim was not
alleged in the Complaint. The trial court also noted that, to the extent
plaintiffs still sought declaratory relief as to the illegality of the
particular CVSC management agreements, such relief was foreclosed
by this court’s determination that plaintiffs lacked standing to seek
such relief. The trial court dismissed the complaint with prejudice and
plaintiffs timely appealed.
                               DISCUSSION
      This court’s August 9, 2016 decision, the trial court’s February 5,
2018 order, and the parties’ briefing in this appeal direct us to answer
the same specific legal question addressed by the trial court: Does

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CDPH approval of unlicensed management companies to operate
licensed SNFs violate state or federal law?
         “Statutory interpretation is ‘an issue of law, which we review de
novo.’ ” (Union of Medical Marijuana Patients, Inc. v. City of San Diego
(2019) 7 Cal.5th 1171, 1183, quoting United Riggers & Erectors, Inc. v.
Coast Iron & Steel Co. (2018) 4 Cal.5th 1082, 1089.) “Our fundamental
task in interpreting a statute is to determine the Legislature’s intent so
as to effectuate the law’s purpose.” (Coalition of Concerned
Communities, Inc. v. City of Los Angeles (2004) 34 Cal.4th 733, 737.)
“We first examine the statutory language, giving it a plain and
commonsense meaning.” (Ibid.) “If the language is clear, courts must
generally follow its plain meaning unless a literal interpretation would
result in absurd consequences the Legislature did not intend. If the
statutory language permits more than one reasonable interpretation,
courts may consider other aids, such as the statute’s purpose,
legislative history, and public policy.” (Ibid.) With these principles in
mind, we turn first to the licensing and approval requirements for
SNFs found in Health & Safety Code section 1250 et seq.3
    I.      HEALTH & SAFETY CODE LICENSING PROVISIONS
         Section 1250 et seq. establish licensing requirements for health
facilities. For the purposes of these requirements, a SNF is defined as
“a health facility that provides skilled nursing care and supportive care
to patients whose primary need is for availability of skilled nursing
care on an extended basis.” (§ 1250, subd. (c).)

3     Unless otherwise indicated, all further section references will be
to the Health and Safety Code.

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      Sections 1250 through 1263 are included as “Article 1. General”
provisions. Section 1253 states, in relevant part: “No person, firm,
partnership, association, [or] corporation . . . . shall operate, establish,
manage, conduct, or maintain a health facility in this state, without
first obtaining a license therefor as provided in this chapter . . . .” (§
1253, subd. (a).)
      Sections 1265 through 1271.25 are included as “Article 2.
Administration” provisions. Section 1265 provides that an entity
seeking “a license for a health facility” or “approval to manage a health
facility currently licensed as a health facility” must file a verified
application with the CDPH. (§ 1265.) Accordingly, the process for
either (1) approval to obtain a license for a SNF, or (2) approval to
manage a SNF falls under the same framework and contains many of
the same requirements. For example, an applicant must submit
satisfactory evidence that it is (1) of “reputable and responsible”
character; and (2) able to “comply with this chapter and of rules and
regulations promulgated under this chapter by the department.”
(§ 1265, subds. (e)–(f).)
      An applicant for a license is, however, subject to some unique
requirements. For example, an applicant for a license must submit
satisfactory evidence that it “possesses financial resources sufficient to
operate the facility for a period of at least 45 days.” (§ 1265, subd. (g).)
A management company is not required to submit this information for
approval to manage a SNF. (Ibid.) Additionally, an application for a
license may be denied if the applicant has been convicted of a “crime,”
defined as a violation of a law or regulation that is substantially related

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to the applicant’s qualifications or duties, or to the functions of the
business for which the license is to be issued. (§§ 1265.1, 1265.2.)
      Applicants for a license are also subject to specific disclosure
requirements. For example: “If the facility is operated by, or proposed
to be operated in whole or part under, a management contract, the
names and addresses of any person or organization, or both, having an
ownership or control interest of 5 percent or more in the management
company shall be disclosed to the state department . . . .” (§ 1267.5,
subd. (a)(3)(A) (section 1267.5(a)(3)(A)), italics added.) In other words,
section 1267.5(a)(3)(A) requires that a licensee make certain disclosures
if a SNF is to be “operated,” either “in whole or part,” by a management
company pursuant to a management agreement. (Ibid.)
      Here, plaintiffs contend that section 1253 should be interpreted
to prohibit the operation of a licensed SNF by an unlicensed
management company, and that section 1267.5(a)(3)(A) should be
rewritten to replace the term “operated” with the term “managed.”
      We do not find the argument persuasive. “ ‘A court must, where
reasonably possible, harmonize statutes, reconcile seeming
inconsistencies in them, and construe them to give force and effect to
all of their provisions.’ ” (Pacific Palisades Bowl Mobile Estates, LLC v.
City of Los Angeles (2012) 55 Cal.4th 783, 805, quoting Hough v.
McCarthy (1960) 54 Cal.2d 273, 279.) As described above, section
1267.5(a)(3)(A) specifically contemplates the operation of a SNF by a
management company through a management agreement with the
licensee. The plain language of section 1267.5(a)(3)(A) thus supports
the operation of a licensed SNF by an unlicensed management
company.

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      We view Section 1253, on the other hand, as a more general
prohibition that a SNF cannot be operated or managed “without first
obtaining a license” to operate that SNF. (§ 1253, subd. (a).) There is
nothing in the provision that precludes a licensee, after having obtained
a license, from then entering into an agreement with a management
company to operate the SNF. Accordingly, we conclude that section
1253 can be construed in a manner that is consistent with section
1267.5(a)(3)(A) and allows for the operation of a licensed SNF by an
unlicensed management company.
      The legislative history regarding the application and approval
process for management companies reinforces our conclusion. In 2000,
the Legislature amended section 1265 to require that an entity seeking
to manage a licensed SNF obtain CDPH approval. (Stats. 2000, ch.
451, § 4, p. 3278 (Assem. Bill No. 1731).) The Legislature appeared to
understand the requirement of section 1253: “Existing law prohibits
the operation, establishment, management, conduct, or maintenance of
a health facility without having first obtained a license, or the
continued operation, conduct, or maintenance of an existing health
facility without having obtained a license.” (Legis. Counsel’s Dig.,
Assem. Bill 1731 (1999-2000 Reg. Sess.) ¶3.) Nevertheless, it amended
section 1265 to “require the filing of an application for approval to
manage a currently licensed skilled nursing facility[.]” (Id. at ¶6.) In
adopting this amendment, the Legislature evidently agreed that an
unlicensed management company could manage a SNF that was
already licensed.
      Moreover, in 2001, the Legislature amended section 1265 again
to exempt management companies from the application requirement in

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subdivision (g) to present satisfactory evidence of financial resources
sufficient to operate a SNF for at least 45 days. (Stats. 2001, ch. 685 §
3, p. 5380 (Assem. Bill No. 1212); see Sen. Rules Com., Off. of Sen.
Floor Analyses, 3d reading analysis of Assem. Bill No. 1131 (2001–2002
Reg. Sess.) as amended Aug. 28, 2001, p. 1.) This requirement was
deemed inapplicable to management companies, as “[t]hese companies
manage day-to-day operations and are not ultimately responsible for
financial operations.” (Assem. Com. on Appropriations, Analysis of
Assem. Bill No. 1212 (2001–2002 Reg. Sess.) as amended Mar. 28,
2001, p. 1, italics added.) This legislative history demonstrates that,
consistent with the plain language of 1267.5(a)(3)(A), an unlicensed
management company may operate a licensed SNF.
      Contrary to plaintiffs’ suggestion, this plain meaning
interpretation does not limit the scope of responsibility held by the
licensee. It is clear that, even if management companies are running
the day-to-day operations, the licensee is still ultimately responsible for
those operations. For example, CDPH’s regulations provide that the
licensee of a SNF “shall be responsible for compliance with licensing
requirements and for the organization, management, operation and
control of the licensed facility.” (Cal. Code Regs., tit. 22, § 72501, subd.
(a), italics added.) The regulations are explicit that “delegation of any
authority by a licensee shall not diminish the responsibilities of such
licensee.” (Ibid.) Accordingly, the operation of a SNF by an unlicensed
management company does not diminish the continuing responsibility
of a licensee to its SNF.

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   II.      NURSING HOME ADMINISTRATOR PROVISIONS
         Beyond the provisions of section 1250 et seq., plaintiffs also argue
that the operation of licensed SNFs by unlicensed management
companies is prohibited by statutory provisions and CDPH regulations
governing nursing home administrators.
         Section 1416 et seq. establishes the Nursing Home Administrator
Program, which licenses and regulates nursing home administrators.
(§§ 1416, 1416.1.) Section 1416.2, subdivision (a)(5), defines a nursing
home administrator as an “individual educated and trained within the
field of nursing home administration who carries out the policies of the
licensee of a nursing home” and is “charged with the general
administration of a nursing home, regardless of whether he or she has
an ownership interest and whether the administrator’s function or
duties are shared with one or more other individuals.” Section 1416.68,
subdivision (a) states that it is the responsibility of the nursing home
administrator to “plan, organize, direct, and control the day-to-day
functions of a facility.”
         CDPH’s regulations require that each SNF must “employ or
otherwise provide an administrator to carry out the policies of the
licensee.” (Cal. Code Regs., tit. 22, § 72513, subd. (a).) The
administrator can be responsible for only one SNF as a general rule,
but can be responsible for up to three facilities if certain other
conditions are met. (Id., subd. (a)(2).) Federal regulations similarly
recognize the role of an administrator, who is appointed by the
governing body of the facility and is “[r]esponsible for the management
of the facility.” (42 C.F.R. § 483.70(d)(2).)

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      Here, plaintiffs do not argue that SNF licensees explicitly
designate management companies as nursing home administrators
under these definitions. Instead, plaintiffs contend that the operation
of a SNF by a management company improperly limits the authority of
a nursing home administrator.
      Again, we do not find the argument persuasive. Section 1416.68,
subdivision (a) sets out the responsibilities of the administrator. Then,
mirroring the language in CDPH’s regulations, subdivision (d) of
section 1416.68 states: “[D]elegation of any authority by a licensee
shall not diminish the responsibilities of that licensee.” This provision
makes clear that the delegation of operations to an unlicensed
management company does not limit the continuing responsibility of
the licensee or its nursing home administrator.
      In sum, we conclude that CDPH approval of unlicensed
management companies to operate licensed SNFs does not violate state
or federal law. Like the trial court, we do not reach the legality of any
particular management agreement, including the Management
Services Agreement attached to the Complaint. This court’s August 9,
2016 decision made clear that plaintiffs lacked standing to bring such a
challenge. (California Advocates for Nursing Home Reform v. Smith
(Aug. 9, 2016, A145267) [nonpub. opn.] at p. 5.) Plaintiffs’ remaining
claims presented a “clear-cut” legal question as to whether the CDPH’s
approval of unlicensed management companies to operate licensed
SNFs violated the law. (Id. at p. 3.) Per the parties’ request, the trial
court answered that legal question as a threshold matter, which
disposed of plaintiffs’ claims. We reach the same answer here.

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      We also reject plaintiffs’ request that this court declare that each
management agreement (either to be presented to the CDPH for
approval or currently in effect) contain certain language to “uphold the
primacy of the authority of the licensee and its administrator.” Such
relief was not requested in the Complaint and was not raised in the
trial court. (Estate of Westerman (1968) 68 Cal.2d 267, 279 [“[N]o
reason appears why we should not apply the established rules that a
party to an action may not, for the first time on appeal, change the
theory of the cause of action . . . and that issues not raised in the trial
court cannot be raised for the first time on appeal”].)
                              DISPOSITION
      Judgment is affirmed. Defendant is entitled to recover costs on
appeal.

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                                      _________________________
                                      Petrou, J.

WE CONCUR:

_________________________
Fujisaki, Acting P.J.

_________________________
Jackson, J.

A158035/California Advocates for Nursing Home Reform v. Smith

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Trial Court:   Alameda County Superior Court

Trial Judge:   Hon. Jo-Lynne Lee

Counsel:       Balisok & Associates, Russell S. Balisok; Law Office
               of Silvio Nardoni, Silvio Nardoni, for Plaintiffs and
               Appellants.

               Office of Attorney General, Xavier Becerra, Attorney
               General, Cheryl L. Feiner, Senior Assistant Attorney
               General, Gregory D. Brown, Supervising Deputy
               Attorney General, Dane C. Barca, Deputy Attorney
               General, for Defendant and Respondent.

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