Court Opinion

ID: 9957089
Source: CourtListenerOpinion
Date Created: 2024-04-03 17:02:38.417506+00
Date Added: 2024-06-11T08:18:06.190804
License: Public Domain

Filed 4/3/24 Maxi-Med Supply v. Health Net CA2/8
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                      DIVISION EIGHT

 MAXI-MED SUPPLY, INC.,                                           B324366

           Plaintiff and Appellant,                               (Los Angeles County
                                                                  Super. Ct. No. 21STCV30021)
           v.

 HEALTH NET, LLC,

           Defendant and Respondent.

     APPEAL from a judgment of the Superior Court of
Los Angeles County. Barbara M. Scheper, Judge. Affirmed.
         Jeffrey D. Nadel for Plaintiff and Appellant.
     Prospera Law, Brandon R. Mead, Richard J. Decker, and
David E. Mead for Defendant and Respondent.
             _________________________________
                        INTRODUCTION
       Plaintiff and Appellant Maxi-Med Supply, Inc. (Maxi-Med)
appeals from a judgment after the trial court sustained
Defendant and Respondent Health Net, LLC’s (Health Net)
demurrer to Maxi-Med’s second amended complaint without
leave to amend. Maxi-Med alleged causes of action for breach of
implied-in-fact contract, fraud, and unfair business practices in
violation of Business and Professions Code section 17200. Each
of Maxi-Med’s causes of action are based on Health Net’s failure
to reimburse Maxi-Med for medical supplies provided by Maxi-
Med to Health Net’s insureds.
       We conclude the trial court properly sustained Health Net’s
demurrer. Further, because Maxi-Med has not met its burden to
show how it can amend its pleading to state a cause of action
under any legal theory, we conclude the trial court did not abuse
its discretion in denying leave to amend. Accordingly, we affirm.
       FACTUAL AND PROCEDURAL BACKGROUND
I.     Factual allegations
       Maxi-Med’s second amended complaint alleged the
following.
       Maxi-Med is a credentialed provider of medical devices and
is enrolled as a Medi-Cal provider with the Department of Health
Care Services (DHCS). Health Net is a medical insurance
company that services the needs of its insureds, and is one of four
primary providers of Medi-Cal services. Maxi-Med is one of
thousands of servicers, who provide medical supplies to Health
Net’s insureds.
       Maxi-Med alleged it had the following arrangement with
Health Net. Maxi-Med would provide Health Net’s insureds, who
were also Medi-Cal beneficiaries, with medical supplies. Maxi-

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Med would then bill Health Net for those supplies, and Health
Net would reimburse Maxi-Med. By January 2021, Maxi-Med
estimates that over $160,000 of accounts receivable were due and
owing from Health Net. This amount included orders for supplies
that were authorized by Health Net. Maxi-Med performed all its
obligations as a provider of medical products and services, and
suffered damages as a result of Health Net’s conduct.
       Maxi-Med further alleged Health Net engaged in fraud
when it knowingly misrepresented it would pay Maxi-Med for
supplies it authorized. Health Net intended for Maxi-Med to rely
on the representation of payment to complete the delivery of
medical supplies and to deprive Maxi-Med of compensation.
Maxi-Med also alleged Health Net fraudulently delayed and
rejected the processing of Maxi-Med’s claims for reimbursement
by sending “unusual ‘error codes’ ” to Maxi-Med, for example,
indicating Health Net was denying payment based on Maxi-
Med’s untimely reimbursement requests.
       Further, Maxi-Med alleged Health Net contracted with an
out-of-state medical provider, who was not licensed or
credentialed in California. Then, in an attempt to steal Maxi-
Med’s business, Health Net directed its insureds to get their
medical supplies from the out-of-state medical provider. The out-
of-state medical provider charged less than Maxi-Med for the
same services. This was in violation of 42 Code of Federal
Regulations part 431.51, which affords certain Medicaid
beneficiaries the “freedom of choice of providers of family
planning services.” (42 C.F.R. § 431.51(b)(2) (2007).)
       Maxi-Med also alleged Health Net engaged in unlawful
business practices by misappropriating insurance premiums and
revenues without regard for the lawful duties of an insurer to pay

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for the medical needs of its insureds. In further support of its
cause for unfair business practices, Maxi-Med realleged Health
Net’s conduct violated 42 Code of Federal Regulations part
431.51(b) (2007).
II.   Procedural history
      Maxi-Med filed its initial complaint in August 2021.
Health Net demurred, arguing Maxi-Med failed to plead mutual
assent sufficient to demonstrate the existence of an implied
contract; there was no agreement to pay for a specific service at a
specific price; and there was no request or acceptance by the
parties to perform services. Maxi-Med opposed the demurrer and
requested leave to amend. The trial court sustained the
demurrer and granted leave to amend.
      Maxi-Med filed a first amended complaint in January 2022.
Maxi-Med attached a redacted exemplar of an authorization
disposition form, showing Health Net approved certain services
provided by Maxi-Med. The form states: “An authorization is not
a guarantee of payment. Member must be eligible at the time
services are rendered. Services must be a covered Health Plan
Benefit and Medically Necessary.” Maxi-Med also attached a
redacted refund request from Health Net to Maxi-Med for
$163.20, indicating that previous refund request erroneously
omitted a notice of Maxi-Med’s appeal rights and refund address.
Health Net demurred again, and Maxi-Med opposed. The trial
court sustained the demurrer and granted leave to amend.
      Maxi-Med filed its second amended complaint in May 2022.
Maxi-Med attached another exemplar of an authorization
disposition form, as well as other exhibits, including Maxi-Med’s
license to operate a home medical device retail facility with the
Department of Public Health; Maxi-Med’s accreditation with the

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Board of Certification/Accreditation; a December 2012 letter from
DHCS welcoming Maxi-Med to the Medi-Cal program; a list of
frequently asked questions from DHCS for Medi-Cal providers;
statements of outstanding refunds from Health Net to Maxi-Med,
a redacted spreadsheet showing unpaid amounts for unknown
services provided by Maxi-Med; the second page of a letter,
advising Maxi-Med about late claim billing limit exceptions and
encouraging Maxi-Med staff to attend statewide training
seminars for billing; a September 2018 letter from Health Net to
one of its insureds advising him or her that he or she is currently
receiving medical supplies from an out-of-network provider,
which are not a covered benefit, and to obtain medical supplies
from “J & B Medical Supply Co. Inc.,” a provider in Health Net’s
provider network; and a printout from a Health Net’s website
with instructions for medical providers to participate in Health
Net’s provider network. The second amended complaint also
included additional allegations regarding specific employees of
Health Net who were involved in denying Maxi-Med’s requests
for reimbursement.
       Health Net demurred again, and Maxi-Med opposed.
The record does not show Maxi-Med requested leave to amend.
The trial court sustained the demurrer without leave to amend.
       Maxi-Med appealed.
                          DISCUSSION
       On appeal, Maxi-Med argues it sufficiently alleged causes
of action for breach of implied contract, fraud, and unfair
business practices. It further argues the trial court abused its
discretion by denying leave to amend because Maxi-Med can
amend its complaint to cure each alleged cause of action and can
state an additional cause of action for equitable subrogation.

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We find Maxi-Med has not sufficiently pleaded any of its alleged
causes of action and has not met its burden to show how it can
amend its pleading to state a cause of action under any possible
theory.
I.     Standard of review
       “On appeal from a judgment dismissing an action after
sustaining a demurrer without leave to amend, the standard of
review is well settled. The reviewing court gives the complaint a
reasonable interpretation, and treats the demurrer as admitting
all material facts properly pleaded. [Citations.] The court does
not, however, assume the truth of contentions, deductions or
conclusions of law. [Citation.] The judgment must be affirmed ‘if
any one of the several grounds of demurrer is well taken.
[Citations.]’ [Citation.] However, it is error for a trial court to
sustain a demurrer when the plaintiff has stated a cause of action
under any possible legal theory.” (Aubry v. Tri-City Hospital
Dist. (1992) 2 Cal.4th 962, 966–967.) “ ‘Where written documents
are the foundation of an action and are attached to the complaint
and incorporated therein by reference, they become a part of the
complaint and may be considered on demurrer.’ ” (County of San
Bernardino v. Superior Court (2022) 77 Cal.App.5th 1100, 1107.)
       “ ‘If we see a reasonable possibility that the plaintiff could
cure the defect by amendment, then we conclude that the trial
court abused its discretion in denying leave to amend. If we
determine otherwise, then we conclude it did not.’ [Citation.]
‘ “The burden of proving such reasonable possibility is squarely
on the plaintiff.” ’ [Citation.] To satisfy this burden, ‘ “a plaintiff
‘must show in what manner he can amend his complaint and how
that amendment will change the legal effect of his pleading’ ” ’ by
clearly stating not only the legal basis for the amendment, but

                                  6
also the factual allegations to sufficiently state a cause of action.”
(Graham v. Bank of America, N.A. (2014) 226 Cal.App.4th 594,
618.)
II.    The trial court properly sustained Health Net’s
       demurrer and did not abuse its discretion by
       denying leave to amend
       A.     Breach of implied contract
       “ ‘A cause of action for breach of implied contract has the
same elements as does a cause of action for breach of contract,
except that the promise is not expressed in words but is implied
from the promisor’s conduct.’ [Citations.] ‘ “[B]oth types of
contract are identical in that they require a meeting of minds or
an agreement [citation]. Thus, it is evident that both the express
contract and contract implied in fact are founded upon an
ascertained agreement or, in other words, are consensual in
nature, the substantial difference being in the mode of proof by
which they are established.” ’ ” (Aton Center, Inc. v. United
Healthcare Ins. Co. (2023) 93 Cal.App.5th 1214, 1230.)
       Maxi-Med argues it has sufficiently pleaded a cause of
action for breach of an implied-in-fact contract because its
complaint alleged: (1) an agreement that Maxi-Med would
provide supplies and Health Net would reimburse for those
supplies; (2) Maxi-Med’s performance; (3) Health Net’s breach,
i.e., nonpayment; and (4) resulting harm.
       Maxi-Med’s theory of an implied agreement between itself
and Health Net is as follows. Because Maxi-Med is registered in
California as a credentialed provider of medical devices and is
enrolled as a Medi-Cal provider with DHCS, and Health Net is
one of only four medical insurance companies in California that
provides administration of Medi-Cal services, Maxi-Med could

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reasonably expect to provide supplies to Health Net’s insureds
and receive reimbursement for those supplies. Additionally,
because Health Net entered into a contract with DHCS to provide
covered services to eligible Medi-Cal beneficiaries, and Maxi-Med
is a Medi-Cal provider, “a reasonable person would conclude that
a mutual agreement exists between Maxi-Med and Health Net
that Health Net would reimburse Maxi-Med for [s]upplies
provided to Health Net insureds where the [s]upplies or servicers
were medically necessary.”1
      Maxi-Med has not sufficiently alleged an implied
agreement with Health Net to pay for supplies. To allege an
implied-in-fact contract, Maxi-Med must allege a “meeting of the
minds” between itself and Health Net (Silva v. Providence
Hospital of Oakland (1939), 14 Cal.2d 762, 773) and a promise
that can be implied from Health Net’s conduct (Donahue v.
United Artists Corp. (1969) 2 Cal.App.3d 794, 808). Maxi-Med’s
bare allegation that Health Net is a Medi-Cal administrator and
Maxi-Med is a Medi-Cal provider does not allege a meeting of the
minds or an implied promise based on Health Net’s conduct.
According to Maxi-Med, so long as a supplier is enrolled with
Medi-Cal, any supplies provided to a Medi-Cal beneficiary are
presumptively subject to reimbursement. However, Maxi-Med

1     In its opening brief, Maxi-Med requested we take judicial
notice of an amended contract between DHCS and Health Net
with respect to Los Angeles County in which Health Net agreed
to provide covered services to eligible Medi-Cal beneficiaries.
Maxi-Med has not provided us with a copy of the agreement nor
was it presented to the trial court. Therefore, we deny Maxi-
Med’s request. (See Coy v. County of Los Angeles (1991)
235 Cal.App.3d 1077, 1083, fn. 3.)

                                8
has cited no authority for such a sweeping proposition, and we
are aware of none. Therefore, Maxi-Med has failed to state a
cause of action for breach of implied-in-fact contract based on this
theory.
       Nor has Maxi-Med shown that it can amend its pleading to
state a cause of action for breach of implied-in-fact contract, for
example, by alleging an agreement to pay for a specific supply at
a specific price, or that it can allege it was entitled to
reimbursement because it met the additional conditions
described in the authorization disposition form. Because Maxi-
Med has failed to meet its burden to show how it can amend its
pleading to state a cause of action for breach of implied-in-fact
contract, or indeed, under any legal theory for which it would be
entitled to relief, we find the trial court did not abuse its
discretion in denying leave to amend this cause of action.
       B.     Fraud
       “The elements which must be pleaded to plead a fraud
claim are ‘(a) misrepresentation (false representation,
concealment or nondisclosure); (b) knowledge of falsity (or
“scienter”); (c) intent to defraud, i.e., to induce reliance;
(d) justifiable reliance; and (e) resulting damage.’ ” (Agricultural
Ins. Co. v. Superior Court (1999) 70 Cal.App.4th 385, 402.)
“The misrepresentation element must normally be satisfied by an
affirmation of fact.” (Ibid.)
       “Each element in a cause of action for fraud or negligent
misrepresentation must be factually and specifically alleged.
[Citation.] The policy of liberal construction of pleadings is not
generally invoked to sustain a misrepresentation pleading
defective in any material respect.” (Cadlo v. Owens-Illinois, Inc.
(2004) 125 Cal.App.4th 513, 519.)

                                 9
       Maxi-Med’s theory of fraud is Health Net misrepresented to
Maxi-Med that Health Net would pay for authorized medical
supplies. However, Maxi-Med’s fraud theory is belied by the
exhibits attached to its complaint. The authorization disposition
form states authorization is not a guarantee of payment, and that
any reimbursement was contingent on the supplies being
medically necessary and a covered health benefit. We fail to see
how Health Net knew these authorizations were false or intended
to defraud Maxi-Med when the authorization form expressly
states payment is conditioned on the supplies being a covered
benefit and medically necessary.
       Maxi-Med’s other theories do not support a cause of action
for fraud. For example, Maxi-Med alleges it received “error
codes” from Health Net and that some claims were denied
because they were untimely but does not explain how those
denials or error codes constituted a misrepresentation. Maxi-
Med also alleges Health Net engaged in fraud by directing its
members to an out-of-state provider, but again does not connect
this allegation to a misrepresentation.
       Thus, we conclude the trial court properly sustained Health
Net’s demurrer with respect to this cause of action. Further, we
conclude the trial court did not abuse its discretion in denying
leave to amend as Maxi-Med has not shown how it can cure its
defective pleading through amendment.
       C.    Unfair business practices
       Business and Professions Code section 17200 provides:
“unfair competition shall mean and include any unlawful, unfair
or fraudulent business act or practice and unfair, deceptive,
untrue or misleading advertising.” The law’s coverage is
“ ‘sweeping, embracing “ ‘anything that can properly be called a

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business practice and that at the same time is forbidden by
law.’ ” ’ ” (Cel-Tech Communications, Inc. v. Los Angeles Cellular
Telephone Co. (1999) 20 Cal.4th 163, 180.) “By proscribing ‘any
unlawful’ business practice, ‘section 17200 “borrows” violations of
other laws and treats them as unlawful practices’ that the unfair
competition law makes independently actionable.” (Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co., at
p. 180.)
       “However, the law does more than just borrow. The
statutory language referring to ‘any unlawful, unfair or
fraudulent’ practice . . . makes clear that a practice may be
deemed unfair even if not specifically proscribed by some other
law. ‘Because Business and Professions Code section 17200 is
written in the disjunctive, it establishes three varieties of unfair
competition—acts or practices which are unlawful, or unfair, or
fraudulent. “In other words, a practice is prohibited as ‘unfair’ or
‘deceptive’ even if not ‘unlawful’ and vice versa.” ’ ” (Cel-Tech
Communications, Inc. v. Los Angeles Cellular Telephone Co.,
supra, 20 Cal.4th at p. 180, italics omitted.)
       Maxi-Med alleges that Health Net engaged in unfair
business practices by misappropriating insurance premiums and
revenues without regard for the lawful duties of an insurer to its
insureds to pay for their medical needs. In its appellate briefing,
Maxi-Med adds that Health Net denied claims submitted by
Maxi-Med and intentionally steered Medi-Cal insureds to an out-
of-network supplier. Maxi-Med also alleges that Health Net
intended to violate 42 Code of Federal Regulation part
431.51(b)(2) (2007), which provides certain Medicaid beneficiaries
“may not be denied freedom of choice of qualified providers of
family planning services.”

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        We fail to see how these allegations are sufficient to state a
cause of action for unfair business practices. First, as pled, Maxi-
Med appears to allege Health Net breached its duty as an insurer
to its insureds to pay for medically necessary services. However,
Health Net’s duty to pay for medically necessary services is owed
to its insureds, not Maxi-Med. Second, Maxi-Med has not
explained how Health Net’s conduct in directing its insureds to
one of Health Net’s in-network providers to avoid noncovered
claims is an unfair business practice. Third, Maxi-Med has not
explained how Health Net violated its insureds’ right to the
“freedom of choice of providers of family planning services”
described in 42 Code of Federal Regulations part 431.51(b)
(2007). “Family planning services include a broad range of
medically approved services, which includes Food and Drug
Administration (FDA)-approved contraceptive products and
natural family planning methods, for clients who want to prevent
pregnancy and space births, pregnancy testing and counseling,
assistance to achieve pregnancy, basic infertility services,
sexually transmitted infection (STI) services, and other
preconception health services.” (42 C.F.R. § 59.2 (2021).) Maxi-
Med has not alleged that any of its claims were related to family
planning services.
        Accordingly, we find the trial court properly sustained
Health Net’s demurrer with respect to this cause of action and
did not abuse its discretion in denying Maxi-Med leave to amend
as Maxi-Med has not shown how it can cure its defective pleading
through amendment.
        D.    Subrogation
        Lastly, Maxi-Med argues it should be granted leave to
amend its pleading to state a cause of action for equitable

                                 12
subrogation. However, as a medical supplier relying on case law
explaining equitable subrogation in the insurance context, Maxi-
Med has not explained how the doctrine of equitable subrogation
would apply here. In the insurance context, equitable
subrogation is generally found to have six elements: “(1) [t]he
insured has suffered a loss for which the party to be charged is
liable, either because the latter is a wrongdoer whose act or
omission caused the loss or because he is legally responsible to
the insured for the loss caused by the wrongdoer; (2) the insurer,
in whole or in part, has compensated the insured for the same
loss for which the party to be charged is liable; (3) the insured
has an existing, assignable cause of action against the party to be
charged, which action the insured could have asserted for his own
benefit had he not been compensated for his loss by the insurer;
(4) the insurer has suffered damages caused by the act or
omission upon which the liability of the party to be charged
depends; (5) justice requires that the loss should be entirely
shifted from the insurer to the party to be charged . . .; and
(6) the insurer’s damages are in a stated sum, usually the
amount it has paid to its insured, assuming the payment was not
voluntary and was reasonable.” (Fireman’s Fund Ins. Co. v.
Maryland Casualty Co. (1994) 21 Cal.App.4th 1586, 1596.)
       To state the obvious, Maxi-Med is not an insurer, and it has
not explained how it can plead any of the necessary elements of a
cause of action for equitable subrogation.

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                        DISPOSITION
      The judgment is affirmed. Respondent shall recover its
costs on appeal.

                                         VIRAMONTES, J.

     WE CONCUR:

                       STRATTON, P. J.

                       GRIMES, J.

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