Case Number: EC061943    Hearing Date: September 12, 2014    Dept: B

12. EC061943
THE PEOPLE OF THE STATE OF CA. vs BRUCE HOLMES, D.C.
Demurrer and Motion to Strike Complaint
Case Management Conference

The Plaintiff, Namali David, operates a preschool program for infants and toddlers. The Plaintiff employed the Defendant, Denise Conner. During her employment, Denise Conner claimed that she suffered three different injuries subject to workers’ compensation for which she sought chiropractic care and treatment from Defendant, Bruce Holmes, D.C. The Defendants engaged in a fraudulent scheme to produce false medical reports and bills to support the workers’ compensation injury claims.
The Plaintiff brings this action on behalf of the State of California to seek damages for the fraud.
The causes of action in the Complaint are for:
1) Violation of State Insurance Frauds Preventions Act
2) Fraud
3) Intentional Misrepresentation
4) Negligent Misrepresentation
5) Constructive Trust
6) Equitable Lien
7) Restitution

This hearing concerns the demurrer filed by the Defendant, Bruce Holmes. On August 8, 2014, the Court considered and overruled a demurrer by the Defendant, Denise Conner that was based on similar arguments.

1. Subject Matter Jurisdiction and Another Action Pending
The Defendant argues that the Court lacks subject matter jurisdiction over this dispute and that there are grounds for a demurrer because another action is pending between the parties on these issues in the Workers’ Compensation Appeals Board.
The Plaintiff alleges in paragraph 1 of the Complaint that this is an action to recover damages and civil penalties for a fraudulent scheme to provide false medical reports and bills to support workers’ compensation injury claims against the Plaintiff. There are no allegations that the workers’ compensation claims have been resolved.
Labor Code section 5300 vests in the Worker’s Compensation Appeals Board exclusive jurisdiction over proceedings for the recovery of compensation, or concerning any right or liability arising out of or incidental thereto. Gilford v. State Compensation Ins. Fund (1974) 41 Cal. App. 3d 828, 831. When determining whether the claims in a Complaint fall within the exclusive jurisdiction of the Workers’ Compensation Appeals Board, the Court considers two factors.
First, the Court determines whether there is a compensable injury. Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal. 4th 800, 813. Second, the Court determines whether the claims raised in the complaint are “collateral to or derivative” of the compensable injury. Id. Claims which are collateral to or derivative of the compensable injury are barred under the exclusivity clause. Moreover, it is well established that disputes which arise over the handling of compensation claims “fall within the scope of the exclusive remedy provisions because this process is tethered to a compensable injury.” Id. at 815. The workers’ compensation system encompasses all disputes over coverage and payment, whether they result from actions taken by the employer, or by the employer’s insurance carrier. Marsh & McLennan, Inc v. Superior Court (1989) 49 Cal. 3d 1, 8.
In making this determination whether a claim falls within the workers’ compensation system, all doubt should be resolved in favor of finding jurisdiction within the workers’ compensation system. Mitchell v. Scott Wetzel Services, Inc. (1991) 227 Cal. App. 3d 1474, 1480 (finding that Workers’ Compensation Act holds exclusive jurisdiction over injured employee’s allegations of insurer misrepresentations and perjury in connection with claims handling).
The preferred policy is to repose in the Workers’ Compensation Appeals Board as much as possible resolution of problems and alleged claims arising out of workers’ compensation matters. Fremont Indemnity Co. v. Superior Court (1982) 133 Cal. App.3d 879, 881. Where there is any reasonable doubt as to the jurisdiction, the Courts must resolve such doubts in favor of jurisdiction and a close case should be found to fall within the exclusivity provision of Workers’ Compensation Act. Gilford v. State Compensation Ins. Fund (1974) 41 Cal. App. 3d 828, 834.

As noted above, the Plaintiff alleges in paragraph 1 of the Complaint that this is an action regarding the production of false medical reports to support workers’ compensation claims against the Plaintiff. The dispute arises over a compensable injury, i.e., an injury in the workplace for which medical treatment was sought. The Plaintiff’s claims are collateral to or derivative of the compensable injury because they involve a dispute over the handling of the compensation claim. Accordingly, the Workers’ Compensation Appeals Board would normally have exclusive jurisdiction over the Plaintiff’s claim.

However, the Plaintiff brings the Complaint under Insurance Code section 1871.7. Under section 1871.7(b), every person who violates any provision of section 1871.7 or Penal Section 549, 550, or 551 shall be subject, in addition to any other penalties that may be prescribed by law, to a civil penalty of not less than five thousand dollars nor more than ten thousand dollars ($10,000), plus an assessment of not more than three times the amount of each claim for compensation, as defined in Labor Code section 3207 or pursuant to a contract of insurance.
This statute was intended to encompass fraudulent claims for workers’ compensation benefits. People ex rel. Monterey Mushrooms, Inc. v. Thompson (2006) 136 Cal. App. 4th 24, 30. It specifically provides for civil penalties for claims for compensation under Labor Code section 3207, which is part of the Workers’ Compensation Act. Id.
In reviewing the Legislature’s intent for the section, the Court found that the Legislature expressed its intent to promote the investigation and prosecution of insurance fraud, including workers’ compensation fraud, which “harms employers by contributing to the increasingly high cost of workers’ compensation insurance and self-insurance and harms employees by undermining the perceived legitimacy of all workers’ compensation claims.” Id.

In Monterey, the plaintiff claimed that the individual defendants had participated in a scheme in which they submitted false claims for workers’ compensation payments from Monterey Mushrooms, Inc. The plaintiff alleged that when billing for treatment of Monterey Mushrooms employees, the defendants prepared fraudulent claims for workers’ compensation payments for unnecessary and excessive chiropractic treatment, frequently submitting at least two, and often three separate claim forms for a single patient visit. The plaintiff sought relief under Insurance Code section 1871.7 for the false claims. The Court found that the trial court had jurisdiction to hear the claim.
Further, the Court found no grounds to abate the civil action until the pending workers’ compensation claims were resolved. The Court in Monterey found that the claim under section 1871.7 was a different controversy involving different alleged wrongs which were prosecuted in accordance with a different statutory authority.

Accordingly, this Court has jurisdiction to hear the Plaintiff’s claims for relief under Insurance Code section 1871.7 and there are no grounds for a demurrer based on subject matter jurisdiction.
Further, there are no grounds to sustain a demurrer and abate this action pending the outcome of the workers’ compensation claims. The Court in Monterey rejected this argument because it found that the section 1871.7 claim involves a different controversy, different wrongs, and different statutory authority from the underlying workers’ compensation claim.

2. Insurance Code section 1871.7(h)
The Defendant then argues that this Court lacks jurisdiction under section 1871.7(h)(2)(A), which states that the Court does not have jurisdiction over an action under section 1871.7 when the action is based on public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, unless the person bringing the action is an original source of information. The phrase “original source” is defined to mean an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the district attorney or commissioner before filing the action.

There are no allegations in the Complaint that indicate that the Plaintiff’s action is based on the public disclosure of allegations or transactions in a hearing. Instead, the pleadings indicate that Plaintiff falls within the definition of “original source” because the Plaintiff is the employer of the Defendant and the Defendant made the workers’ compensation claims for injuries she suffered while an employee of the Plaintiff. The Plaintiff is an “aggrieved party” in this dispute regarding fraudulent billing and it is reasonable to draw the inference that the Plaintiff has direct and independent knowledge of the information on which the allegations, e.g., the Plaintiff discovered the facts supporting the fraudulent billing claim.

Accordingly, there are no grounds to sustain a demurrer on the ground that the Plaintiff, as the employer of the Defendant, obtained the information supporting her claims of fraudulent billing from the public disclosure of information.

3. Exhaustion of Remedies
The Defendant argues that the Plaintiff must exhaust all available administrative remedies before seeking judicial review of an administrative action or decision. This argument is based on a defective premise, i.e., it assumes the Plaintiff is seeking judicial review of an administrative action or decision.
The pending action is not brought to seek judicial review of any administrative action or decision. Instead, the pending action is brought under Insurance Code section 1871.7 to seek damages and remedies for fraudulent billing. There is no requirement in Insurance Code section 1871.7 that the Plaintiff exhaust any administrative remedies before bringing this claim.

Accordingly, there are no grounds to sustain a demurrer based on the failure to exhaust remedies.

4. Lack of Capacity
The Defendant then argues that the Plaintiff lacks capacity based on an argument regarding the d/b/a. Under California’s statutory scheme that regulates the use of fictitious names in business, a d/b/a name must be registered. The penalty for failing to register a d/b/a under Business and Professions Code section 17918 is that the party may not maintain an action on behalf of the fictitious business name.
This would bar the Plaintiff from maintaining an action on behalf of a fictitious business name. However, in the pending case, the Plaintiff is bringing the claim in the name of the Plaintiff, Namali David. Since the Plaintiff is bringing the claim in her own name, there are no grounds for a demurrer.
Further, the designation “d/b/a” is merely descriptive of the person or corporation who does business under some other name. Pinkerton’s, Inc. v. Superior Court (1996) 49 Cal. App. 4th 1342, 1348. Doing business under another name does not create an entity distinct from the person operating the business. Id. The business name is a fiction, and so too is any implication that the business is a legal entity separate from its owner. Id. This indicates that the Plaintiff can bring an action to seek relief for injuries to the Plaintiff because the use of the d/b/a did not create any separate legal entity.
Accordingly, there are no grounds for a demurrer based on lack of capacity.

5. Another Action Pending
The Defendant argues that the workers’ compensation claims constitute another action pending and the Court should abate this action. Further, the Defendant argues that findings in the Workers’ Compensation Appeals Board that the medical bills are proper will collaterally estop the Plaintiff’s claims.
The Court in Monterey considered and rejected these arguments. The Court found no basis to apply the doctrine of res judicata or collateral estoppel to a civil action under Insurance Code section 1871.7 because it involved a different statutory remedy under a different statutory scheme from the workers’ compensation claim. People ex rel. Monterey Mushrooms, Inc. v. Thompson (2006) 136 Cal. App. 4th 24, 31-32.
In Monterey, the defendants claimed at trial that all of the treatment and charges at issue in the civil action had already been found reasonable and necessary by the Workers Compensation Appeals Board. The defendants asked the trial court to enter a finding consistent with that result. The trial court found that collateral estoppel did not apply because the civil action was based on Insurance Code section 1871.7, and the Workers’ Compensation Appeals Board did not have before it the broad pattern of conduct that was alleged in the civil action. Further, the trial court declined the defendants’ request to admit workers’ compensation records of four patients. The Court of Appeal rejected the defendants’ appeal of these decisions and found that res judicata did not apply.
The same reasoning applies in the pending case because this is a civil action to seek relief under Insurance Code section 1871.7, which differs from the statutory scheme for workers’ compensation claims. Just as in Monterey, any finding by the Workers’ Compensation Appeals Board that the medical treatment and charges is reasonable and necessary does not collaterally estop the Plaintiff from asserting a claim for fraudulent billing under Insurance Code section 1871.7.

Accordingly, there are no grounds for a demurrer based on another action pending.

6. Lack of Sufficient Facts
The Defendant argues that the second cause of action for fraud lacks sufficient facts. The fraud cause of action must include the following elements:

1) a representation, usually of fact, which is false;
2) knowledge of its falsity;
3) intent to defraud;
4) justifiable reliance upon the misrepresentation; and
5) damage resulting from that justifiable reliance
Stansfield v. Starkey (1990) 220 Cal. App. 3d 59, 72-73.

Facts constituting each element of fraud must be alleged with particularity; the claim cannot be saved by referring to the policy favoring liberal construction of pleadings. Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 216. Since fraud must be pleaded with particularity, the complaint must allege facts showing how, when, where, to whom, and by what means the representations were tendered. Stansfield v. Starkey (1990) 220 Cal.App.3d 59, 73.

The Plaintiff’s second cause of action lacks the particular facts. The Plaintiff alleges in paragraph 72 that the Defendants made material representations and concealed material information from the Plaintiff concerning services performed. There are no particular allegations regarding the moving Defendant, Bruce Holmes, that identify how, when, where, or by what means he tendered any representations.
Further, there are no particular allegations identifying the damages resulting from the Plaintiff’s justifiable reliance on any representations of Bruce Holmes. There are no allegations identifying any damages.
In the opposition, the Plaintiff argues that the Plaintiff has pleaded that the Defendant engaged in and assisted in the fraudulent billing and that the Defendant made false representations regarding her medical conditions. However, none of these are in the second cause of action.
It appears that the Plaintiff is incorporating particular facts from other parts of the Complaint. This is an improper use of incorporation. A civil plaintiff may, for the sake of convenience, incorporate by reference previous portions of the pleading for informational purposes only. Cal-West Nat. Bank v. Superior Court (1986) 185 Cal. App. 3d 96, 101. Neither the Court nor the Defendant is required to search the pleadings in order to determine whether the Plaintiff has pleaded the particular facts needed to state the fraud cause of action. Instead, the essential elements of each cause of action must be pleaded within the cause of action.

Therefore, the Court sustains the demurrer to the second cause of action with 10 days leave to amend.

7. Motion to Strike
The Defendant argues that the entire Complaint should be stricken as a sham pleading because the Plaintiff’s claims are identical to the claims before the Workers’ Compensation Appeals Board. This argument is not persuasive because, as discussed above, the Plaintiff is bringing these claims under Insurance Code section 1871.7, which expressly authorizes a party to seek relief from fraudulent claims for workers’ compensation benefits. People ex rel. Monterey Mushrooms, Inc. v. Thompson (2006) 136 Cal. App. 4th 24, 30. It specifically provides for civil penalties for claims for compensation under Labor Code section 3207, which is part of the Workers’ Compensation Act. Id. Since the California Legislature enacted section 1871.7 to provide relief from fraudulent claims for workers’ compensation benefits, the Plaintiff’s Complaint, which seeks relief under section 1871.7 , is not a sham pleading.
Accordingly, the Court denies the Defendant’s motion to strike because there are no grounds to find that the Plaintiff’s Complaint is a sham pleading.