2014-80001828-CU-WM

American Indian Health Services, Inc. vs. Toby Douglas

Nature of Proceeding: Motion for Attorney Fees

Filed By: Doi, Kathryn E.

Petitioners’ motion for attorney fees is denied for the reasons stated below.

BACKGROUND

The background to this case is discussed more fully in the court’s December 8, 2015, order granting the petition for writ of mandate and complaint for declaratory and injunctive relief, and the Third District Court of Appeal’s decision affirming that order ( American Indian Health & Services Corp. (2018) 24 Cal.App.5th 772). For present purposes, it is sufficient to note the following.

Petitioners are 23 federally-qualified health centers (FQHCs) or rural health clinics (RHCs) providing adult dental, chiropractic and podiatric services to Medi-Cal patients. The Department reimbursed them for such services until July 1, 2009, when Welfare and Institutions Code section 14131.10 went into effect. Section 14131.10 excluded adult dental, chiropractic and podiatric services from the Medi-Cal program.

Section 14131.10 was challenged in federal court, and the Ninth Circuit ultimately held that federal law requires Medi-Cal to cover adult dental, podiatry and chiropractic services provided by FQHCs and RHCs. (California Association of Rural Health Clinics v. Douglas (9th Cir. 2013) 738 F.3d 1007 [“CARHC”].) The Ninth Circuit’s decision went into effect on September 26, 2013, and the Department resumed reimbursing FQHCs and RHCs for such services on and after that date.

The Department took the position that coverage for adult dental, chiropractic and

podiatric services was not reinstated until the Ninth Circuit’s decision went into effect, and that claims for services rendered prior to that date were thus not reimbursable. By this action, Petitioners challenged that position. They claimed they were entitled to payment for services rendered between July 1, 2009, when section 14131.10 went into effect, and September 26, 2013, when the Ninth Circuit held section 14131.10 was preempted by federal law.

The court agreed with Petitioners. On January 11, 2016, it entered judgment in their favor, and issued a writ of mandate ordering the Department “to process and pay for adult dental, chiropractic, and podiatric services provided by Federally-qualified health centers and rural health clinics between July 1, 2009 and September 26, 2013, following the Department of Health Care Services’ existing regulations regarding late claims and otherwise to determine whether any particular claim is payable and must be paid.”

The Department appealed, and the Court of Appeal affirmed in a published decision. ( American Indian Health & Services Corp., supra, 24 Cal.App.5th 772.)

Petitioners now seek to recover their attorney fees pursuant to Code of Civil Procedure section 1021.5.

DISCUSSION

California follows what is commonly referred to as the “American Rule,” which provides that each party to a lawsuit must pay his or her own attorney fees unless such fees are specifically provided for by statute. (Tract 19051 Homeowners Assn. v. Kemp (2015)

60 Cal.4th 1135, 1142; Code Civ. Proc. § 1021.) Here, Petitioners’ request for attorney fees is based on Code of Civil Procedure section 1021.5, which authorizes the court to award attorney fees to a successful party “in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement . . . [is] such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any.” Section 1021.5 codifies what is known as the private attorney general doctrine. (Vasquez v. State of California (2008) 45 Cal.4th 243, 250.) “The doctrine rests on the recognition that privately initiated lawsuits, while often essential to effectuate important public policies, will as a practical matter frequently be infeasible without some mechanism authorizing courts to award fees.” (Id.) The private attorney general doctrine seeks to encourage suits that enforce important public policies by providing attorney fees to successful litigants in such cases. (Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 565.)

The court may award attorney fees only if Petitioners demonstrate that all of the requirements of section 1021.5 are met. (Millview County Water Dist. v. State Water Resources Control Bd. (2016) 4 Cal.App.5th 759, 769; Robinson v. City of Chowchilla
(2011) 202 Cal.App.4th 382, 390-91.) That means Petitioners must demonstrate:

1. They were the successful party in the underlying action;

2. The action resulted in the enforcement of an important right affecting the public interest;

3. The action conferred a significant benefit on the general public or a large class of persons;

4. Private enforcement was necessary because no public entity or official pursued enforcement;

5. The financial burden of private enforcement makes an award appropriate; and

6. In the interests of justice, the fees should not be paid out of any recovery.

(Robinson, supra, 202 Cal.App.4th at 390; Children & Families Com. of Fresno County v. Brown (2014) 228 Cal.App.4th 45, 55.) If any one of these elements is missing, the motion for attorney fees must be denied. (Robinson, supra, 202 Cal.App.4th at 391.)

The Department does not dispute that Petitioners were the successful party within the meaning of section 1021.5. They clearly were – judgment was entered in their favor, and that judgment was upheld on appeal in a published decision.

The Department also does not dispute that private enforcement was necessary because public enforcement was not forthcoming. It was. Where, as here, a lawsuit is brought against the very government entity and officials who refused to comply with their statutory responsibilities, “the ‘necessity of private enforcement’ portion of the test is readily met.” (City of Santa Monica v. Stewart (2005) 126 Cal.App.4th 43, 85.)

Two of the requirements for awarding fees overlap: (1) that the action resulted in the enforcement of an important right affecting the public interest; and (2) that the action conferred a significant benefit on the general public or a large class of persons. Both of these requirements focus on the significance of the right or benefit at issue (“important right,” “significant benefit”), and the size of the group affected (“public interest,” “general public or large class of persons”). Petitioners appear to conflate these two requirements and do not separately discuss them. The Department only discusses whether this action conferred a significant benefit on the general public or a large class of persons, and not whether it enforced an important right affecting the public interest. For purposes of this motion, the court will assume this action resulted in the enforcement of an important right affecting the public interest.

Neither party discusses the last requirement – whether the fees should be paid out of any recovery. It is too early to analyze this requirement. Although the Department has instituted a process to submit, review, and pay claims, that process is not yet finished. Indeed, at the time this motion was filed, no claims had been processed. In their reply, Petitioners state some claims have been denied, and no claims have been paid. They also state the Department has provided no information about when claims would be processed and/or paid. (Supp. Doi Decl., ¶¶ 3-7.) The court thus does not yet know what the recovery in this case will be. Until that amount is determined, the court cannot assess whether, in the interests of justice, Petitioners’ attorney fees should be paid from the recovery rather than by the Department. (See Collins v. City of Los Angeles (2012) 205 Cal.App.4th 140, 156-57.) Arguably, then, this motion is premature.

The court need not await resolution of this issue before ruling on the present motion,

however, because it agrees with the Department’s argument that Petitioners fail to demonstrate either (1) that the financial burden of private enforcement justifies a fee award in this case, or (2) that this action conferred a significant benefit on the public or a large class of people.

The Financial Burden of Private Enforcement

The Department argues Petitioners have not shown the financial burden of private enforcement justifies a fee award. The court agrees.

This particular requirement focuses on “the financial burdens and incentives involved in bringing the lawsuit.” (Press v. Lucky Stores, Inc. (1983) 34 Cal.3d 311, 321.) “Section 1021.5 was not designed as a method for rewarding litigants motivated by their own pecuniary interests who only coincidentally protect the public interest.” ( Austin v. Board of Retirement (1989) 209 Cal.App.3d 1528, 1535.) Instead, its purpose “is to provide some incentive for the plaintiff who acts as a true private attorney general, prosecuting a lawsuit that enforces an important public right and confers a significant benefit, despite the fact that his or her own financial stake in the outcome would not by itself constitute an adequate incentive to litigate.” (Satrap v. Pacific Gas & Electric Co. (1996) 42 Cal.App.4th 72, 80, emphasis added.)

When considering the financial burden of private enforcement, the court must focus on Petitioners’ “objective financial incentives” for bringing its action. (Conservatorship of Whitley (2010) 50 Cal.4th 1206, 1221 [Whitley].) And in order to assess those incentives, the court must compare (1) the actual costs of the litigation, with (2) the financial benefits Petitioners reasonably expected from the litigation. (Whitley, supra, 50 Cal.4th at 1215; Robinson, supra, 202 Cal.App.4th at 401-02.)

Here, although Petitioners do not directly address this issue in their papers, it appears from the evidence they proffer that their actual litigations costs were somewhere around $380,000 – i.e., the fees they seek by this motion. (Robinson, supra, 202 Cal.App.4th at 402.) The question then becomes whether those costs placed a burden on Petitioners that is out of proportion to the financial benefits they reasonably expected from this litigation. (Id. at 401; see also Whitley, supra, 50 Cal.4th at 1216 [attorney fees will generally be appropriate “except where the expected value of the litigant’s own monetary award exceeds by a substantial margin the actual litigation costs.”].)

Petitioners’ financial benefit is based on the estimated monetary value of this case “at the time the vital litigation decisions were being made.” (Whitley, supra, 50 Cal.4th at 1220; Collins, supra, 205 Cal.App.4th at 154, fn. 10 [court must look at estimated value of case when litigations decisions are made, not recovery after trial].) The estimated value of a case must then be discounted “by some estimate of the probability of success[.]” (Whitley, supra, 50 Cal.4th at 1215.)

Here, Petitioners provide no estimate of the monetary value of this case at the time vital litigations decisions were being made. Indeed, they do not even address this issue in their opening papers, and they barely mention it in their reply. Although they have provided short declarations from two clinic CEOs, in addition to a lengthy declaration from their attorney, none of these declarations mention, much less estimate, the financial benefit of this litigation. Because Petitioners have the burden of demonstrating all of the requirements of section 1021.5 are met, this failure is arguably

a reason in and of itself to deny their motion. (See Millview, supra, 4 Cal.App.5th at 769.)

Petitioners claim “[b]eing paid for services rendered is not a financial benefit.” They cite no authority for this proposition. Again, the critical question is what was the estimated monetary value of this case at the time important litigation decisions were being made? Here, Petitioners sought a writ of mandate requiring the Department to process and pay claims for adult dental, chiropractic, and podiatric services provided between July 1, 2009 and September 26, 2013. The estimated monetary value of this case is thus the estimated value of those claims, discounted by some percentage to estimate the probability of success.

In their reply, Petitioners argue they did not seek “monetary damages” by this action. This is true, but not dispositive. Petitioners sought a writ of mandating ordering the Department to process and pay certain claims; if those claims are paid, Petitioners will recover money. Petitioners also argue there is no guarantee they will ultimately recover any money. Again, this is true, but not dispositive. This requirement does not look at Petitioners’ actual recovery; it looks at the estimated value of the case at the time important litigation decisions were being made. (Collins, supra, 205 Cal.App.4th at 154, fn. 10.) Moreover, even if this requirement did look at Petitioners’ actual recovery, that would simply mean this motion is premature until the amount of their recovery is known.

Petitioners argue that even if a substantial number of claims are ultimately paid as a result of this litigation, these payments would not constitute a “windfall” and would instead simply constitute reimbursement for services already rendered. This may be true, but Petitioners fail to explain why it is relevant.

The Department has proffered evidence that shows Petitioners have, at various times during the litigation, valued this case at anywhere between $8 million and $28 million. (See Brown Decl.) Petitioners do not dispute this. Even if the court takes the lower number and both (1) cuts it in half and then (2) discounts it by 50 percent to estimate the probability of success, that still means the estimated value of this case was $2 million. Petitioners thus spent close to $400,000 for the chance to recover $2 million or more. The court cannot say that pursuing this litigation placed a financial burden on Petitioners that was out of proportion to their stake in the matter. (Whitley, supra, 50 Cal.4th at 1215; see also Millview, supra, 4 Cal.App.5 th at 766, 769 [denying attorney fees where litigation costs for two plaintiffs were over $339,000, and they stood to gain $1.6 million if successful]; Satrap, supra, 42 Cal.App.4th at 76, 78-79 [denying fees where party spent approximately $1.2 million for chance to recover between $2.1 million and over $100 million].)

In their reply, Petitioners note the value of each of the 23 individual clinic’s claims is significantly less than the total estimated value of this case. True – but presumably each of the 23 clinics is responsible for funding a pro rata portion of this litigation, rather than the entire litigation.

Petitioners also state in their reply that the estimated financial benefit of this action to two of the individual clinics is small – approximately $16,000 and $23,000 in unpaid claims, respectively. Petitioners then compare that modest benefit to the total fees requested (approximately $387,000) apportioned equally among all 23 clinics (approximately $17,000). Finally, Petitioners argue the potential recovery for these two clinics “is negligible or even less than their apportioned shared of the cost of the

litigation.” Even if the court assumes the estimated financial benefit to these two clinics would not, by itself, constitute an adequate incentive to litigate, Petitioners cite no authority for the proposition that the court should simply ignore the objective financial incentives for the remaining 21 clinics, or for the 23 clinics as a whole, when deciding a motion for attorney fees under section 1021.5.

Petitioners thus fail to convince the financial burden of private enforcement makes a fee award appropriate in this case.

No Significant Benefit to General Public or Large Class of Persons

The Department also argues Petitioners have failed to establish this action conferred a significant benefit on the general public or a large class of persons. (§ 1021.5.) Again, the court agrees.

Petitioners are 23 clinics. The court finds 23 clinics is not a particularly large class of persons (and Petitioners do not suggest otherwise). Petitioners argue, however, that this action conferred a significant benefit on Medi-Cal beneficiaries who receive health care from FQHCs or RHCs. The court will assume for the sake of argument these beneficiaries could constitute a sufficiently large class of persons. As the Department persuasively argues, however, this litigation primarily benefitted Petitioners, by allowing them to be reimbursed for adult dental, chiropractic and podiatric services rendered to Medi-Cal beneficiaries between July 1, 2009 and September 26, 2013. Although the underlying services were provided to Medi-Cal beneficiaries, they are not the primary beneficiaries of this litigation. All of the services at issue had already been provided before this action was filed on May 8, 2014. This litigation thus did not affect whether Medi-Cal beneficiaries received services to which they are entitled. Instead, it only affected whether Petitioners would be reimbursed for services already provided. Moreover, this litigation did not affect reimbursement going forward, because the Department resumed reimbursing FQHCs and RHCs for the services at issue when the Ninth Circuit’s decision in CARHC went into effect on September 26, 2013, over seven months before this litigation was commenced.

Petitioners state that, in some cases, patients may have foregone dental, chiropractic or podiatric services completely, because they could not afford to pay for those services themselves. Assuming this is true, it is indeed unfortunate. But it is far from clear that this unfortunate fact was caused by the Department’s position that such services were not reimbursable until the Ninth Circuit’s decision in CARHC went into effect. Instead, it appears to have been caused primarily by the Legislature’s decision to enact a law excluding such services from the Medi-Cal program, when federal law required Medi-Cal to cover such services when provided by FQHCs and RHCs. Moreover, and perhaps more importantly, this litigation has done nothing (and could do nothing) to change the unfortunate fact that some Medi-Cal beneficiaries may have foregone services to which they were always entitled. Instead, the only thing this litigation may change is whether Petitioners will be reimbursed for services they actually provided.

To support their argument that this litigation conferred a significant benefit on a large class of persons, Petitioners note they are all non-profit organizations. This is true. But the court is aware of no rule that suggests non-profits are automatically entitled to attorney fees whenever they prevail in litigation.

Petitioners also note they serve medically underserved populations. Again, this is true, but the court is aware of no rule that suggests those who serve the underserved are automatically entitled to attorney fees whenever they prevail in litigation.

Citing Robinson, supra, Petitioners suggest, with almost no discussion, that this action conferred a significant benefit on the general public because it resulted in a published appellate opinion. (Robinson, supra, 202 Cal.App.4th at 397-98.) It is true that this case resulted in a published appellate opinion, but it is also distinguishable from Robinson. There, the published appellate opinion confirmed, for the first time, that chiefs of police have certain rights under the Public Safety Officers Procedural Bill of Rights Act (“POBRA”) before they may be removed by their appointing authority. (Id. at 388; see also Robinson v. City of Chowchilla (2011) 202 Cal.App.4th 368.) That published decision thus conferred a significant benefit on all police chiefs in the state, which the court found was a large class of persons. (Robinson, supra, 202 Cal.App.4th at 399.) Moreover, when it enacted POBRA, the Legislature expressly found and declared that the rights and protections it provided “constitute a matter of statewide concern. The Legislature further finds and declares that effective law enforcement depends upon the maintenance of stable employer-employee relations, between public safety employees and their employers.” (Gov. Code § 3301.) The Robinson court thus found that a published appellate decision interpreting POBRA helps maintain stable relations between peace officers and their employers and thus helps “to assure effective law enforcement,” which ultimately inures to the benefit of the general public. (Robinson, supra, 202 Cal.App.4th at 398-99; see also Baggett v. Gates (1982) 32 Cal.3d 128, 136-37, 143.)

Here, unlike in Robinson, it is unclear how (or even whether) the published appellate decision in this case will inure to the benefit of anyone other than the 23 Petitioners in this case. Moreover, the benefits conferred by this litigation are backward looking, not forward looking. Again, the Department resumed reimbursing FQHCs and RHCs for adult dental, chiropractic and podiatric services provided to Medi-Cal beneficiaries well before this litigation was commenced in mid-2014. This litigation thus directly affected only claims for services previously rendered by Petitioners between July 1, 2009, and September 26, 2013.

Perhaps one day the Legislature will pass another law excluding certain services from Medi-Cal, and that law will be struck down by the courts, and the issue will then arise whether that decision is retroactive or whether a suit seeking reimbursement for services rendered to Medi-Cal beneficiaries is properly considered one for money damages. In that case, the published decision in this case may indeed provide valuable answers to these questions. Unless and until that happens, however, the impact of this litigation appears largely confined to the 23 Petitioners who seek reimbursement for services rendered between July 1, 2009 and September 26, 2013.

As our Supreme Court has held:

[T]he public always has a significant interest in seeing that legal strictures are properly enforced and thus, in a real sense, the public always derives a “benefit” when illegal private or public conduct is rectified. Both the statutory language (“significant benefit”) and prior case law, however, indicate that the Legislature did not intend to authorize an award of attorney fees in every case involving a statutory

violation. We believe rather that the Legislature contemplated that in adjudicating a motion for attorney fees under section 1021.5, a trial court would determine the significance of the benefit, as well as the size of the class receiving benefit, from a realistic assessment, in light of all the pertinent circumstances, of the gains which have resulted in a particular case.

(Woodland Hills Residents Assn., supra, 23 Cal.3d at 939-40, italics in original.) One could similarly argue that the public always derives a benefit when an appellate decision is published, because that decision is binding and precedential in future cases. But, as our Supreme Court cautions, “merely because an appellate opinion is certified for publication does not mean it involves an important right affecting the public interest. The fact that litigation results in significant appellate precedent is only one factor to be considered in that regard.” (Serrano v. Stefan Merli Plastering Co., Inc. (2011) 52 Cal.4th 1018, 1029; see also Adoption of Joshua S. (2008) 42 Cal.4th 945, 958 [“whether litigation generates important appellate precedent is a factor courts may consider in determining whether the litigation can be said to enforce an important right affecting the public interest.”].) Thus, attorney fees are not justified in every case involving a published appellate decision. Petitioners fail to demonstrate that the published appellate decision in this case conferred a significant benefit on either the general public or a large class of persons.

CONCLUSION

For the reasons stated above, the court denies the motion for attorney fees. It does so somewhat reluctantly. Because California has chosen to participate in the federal Medicaid program, the Department must comply with requirements imposed by the Medicaid Act. (Alaska Department of Health & Social Services v. Centers for Medicare and Medicaid Services (9th Cir. 2005) 424 F.3d 931, 935.) In 2013, the Ninth Circuit held the Medicaid Act law requires Medi-Cal to cover adult dental, podiatric, and chiropractic services provided by FCHCs and RHCs, and it thus invalidated Welfare and Institutions Code section 14131.10 to the extent it attempted to exclude coverage for such services. (CARHC, supra, 738 F.3d 1007.) The Ninth Circuit’s decision went into effect on September 26, 2013. Although the Department began covering such services immediately thereafter, it took the position that such services were not reimbursable if provided before September 26, 2013. This action followed.

This court entered judgment in favor of Petitioners and ordered the Department to process claims for adult dental, chiropractic and podiatric services provided prior to September 26, 2013. Both here and in the appellate court the Department argued (1) this action was barred by the doctrine of sovereign immunity and (2) the CARHC decision was not retroactive. This court rejected both arguments; the appellate court did as well. Although it cannot speak for the appellate court, the court notes this was not a particularly difficult case to decide. It is unfortunate that Petitioners had to fight so hard and so long to get the Department to even consider Petitioners’ pre-September 2013 claims for adult dental, chiropractic and podiatric services. “But enforcement efforts alone do not justify an attorney fee award; the benefit gained must be significant and widespread.” (Concerned Citizens of La Habra v. City of La Habra (2005) 131 Cal.App.4th 329, 336.) Petitioners have failed to demonstrate that this litigation conferred such a significant and widespread benefit. They have also fail to

demonstrate that the financial burden of private enforcement makes a fee award appropriate in this case in light of their expected significant monetary recovery.

The minute order is effective immediately. No formal order pursuant to CRC Rule 3.1312 or further notice is required.