Tentative Ruling

Judge Donna Geck
Department 4 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION
Allied Health Resources, Inc. vs Alan E Malki, MD
Case No: 19CV03177
Hearing Date: Fri Nov 22, 2019 9:30

Nature of Proceedings: Demurrer

TENTATIVE RULING: Defendant’s demurrer to the complaint, and each and every cause of action, is sustained with leave to amend. Any amended pleading shall be filed on or before December 6, 2019.

BACKGROUND:

Plaintiff Allied Health Resources, Inc. (“Allied”) provides cardiovascular perfusion services to hospitals and other medical providers. Perfusionists support cardiovascular surgeons by managing the heart-lung machine during open heart surgery. On October 7, 2015, non-party Santa Barbara Cottage Hospital (“Cottage”) executed an agreement with Allied for cardiovascular perfusion services. The agreement provided that Allied would furnish perfusion personnel and perform perfusion services for Cottage for a period of five years as an independent contractor. The fees for such services were set forth in a schedule that was attached to the agreement.

In December 2016, Cottage hired defendant and cardiothoracic surgeon Alan E. Malki, M.D. (“Malki”), as a staff surgeon. Allied alleges that Malki made false and disparaging statements to Cottage regarding the clinical performance and abilities of its perfusionists. Malki also allegedly insisted that Allied retain a particular perfusionist name Joseph Valashinas (“Valashinas”), with whom Malki had a prior business relationship. In an attempt to appease Malki and Cottage, Allied offered a contract to Valashinas that was identical to the contracts it had with other perfusionist subcontractors, but Valashinas declined to sign the agreement, allegedly because Malki advised against it. On November 7, 2017, Cottage notified Allied that it was terminating their perfusion services agreement.

On June 17, 2019, Allied filed its complaint against Malki for (1) intentional interference with contract, (2) intentional interference with prospective economic advantage with Cottage, (3) intentional interference with prospective economic advantage with Valashinas, (4) negligent interference with prospective economic advantage with Cottage, (5) inducing breach of contract, (6) trade libel, and (7) unfair trade practices. Allied alleges that Malki interfered with its relationship with Cottage and induced Cottage to breach their perfusion services agreement. Malki now demurs to the complaint, and each and every cause of action, on the ground that the claims are not actionable as a matter of law. Allied has agreed to dismiss its seventh cause of action for unfair trade practices, but opposes the rest of the demurrer.

ANALYSIS:

The legal authority for a demurrer is found in Code of Civil Procedure Section 430.10, which provides, in relevant part:

“The party against whom a complaint . . . has been filed may object, by demurrer . . . to the pleading on any one of the following grounds:

“(e) The pleading does not state facts sufficient to constitute a cause of action.”

A demurrer can be used only to challenge defects that appear on the face of the complaint or from matters outside the complaint that are judicially noticeable. Donabedian v. Mercury Insurance Company (2004) 116 Cal.App.4th 968, 994. This means that a court cannot consider facts asserted in a demurrer which, if true, would disclose a defect in the complaint. Ion Equipment Corporation v. Nelson (1980) 110 Cal.App.3d 868, 881. Moreover, in reviewing the sufficiency of a cause of action against a demurrer, the court assumes the truth of all facts properly pleaded. Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 558. The court also assumes the truth of all reasonable inferences that may be drawn from the properly pleaded facts. Reynolds v. Bement (2005) 36 Cal.4th 1075, 1083.

Allied’s first cause of action is for intentional interference with contract. To state a cause of action for intentional interference with contract, the plaintiff must allege (1) a valid contract between the plaintiff and a third party, (2) the defendant’s knowledge of the contract, (3) intentional acts by the defendant designed to induce a breach or disruption of the contract, (4) actual breach or disruption of the contract, and (5) resulting damage. Pacific Gas & Electric Company v. Bear Stearns & Company (1990) 50 Cal.3d 1118, 1126. Only “a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.” Ibid. “[A] ‘stranger’. . . means one who is not a party to the contract or an agent of a party to the contract.” Asahi Kasei Pharma Corporation v. Actelion Ltd. (2013) 222 Cal.App.4th 945, 963. As the California Supreme Court stated in Applied Equipment Corporation v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514:

“The tort duty not to interfere with the contract falls only on strangers – interlopers who have no legitimate interest in the scope or course of the contract’s performance.”

In a strict sense, Allied has alleged each of the necessary elements of a cause of action for intentional interference with contract – an agreement between Allied and Cottage to provide perfusion services, Malki’s knowledge of the agreement, wrongful conduct by Malki that made Allied’s performance more expensive and difficult and that ultimately caused Cottage to terminate the agreement, and resulting damage. (Comp., ¶¶ 43, 44, 46, 47, 49.) However, based upon the clear language of the perfusion services agreement itself, Malki was not a “stranger” to the agreement, i.e., an “interloper[] who [had] no legitimate interest in the scope or course of the contract’s performance.” Applied Equipment, supra, at 514. On the contrary, the agreement explicitly provides that Allied shall provide its services “under the direction of the attending surgeon” (Comp., Ex. A, ¶1.9), that Allied’s personnel shall act “in compliance with the Physician’s orders” (Comp., Ex. A, ¶1.12), and that Cottage shall review and evaluate Allied’s work based upon “[i]nput from clinical leaders and the medical staff” (Comp., Ex. A, ¶14.1). Thus, the perfusion services agreement specifically recognized that Malki, as Cottage’s representative, would be vested with the power to evaluate the quality of Allied’s work under the agreement.

Allied argues that whether Malki was an agent or representative of Cottage is a question of fact for the jury. “Normally the question of agency is one of fact for the jury.” Mayers v. Litow (1957) 154 Cal.App.2d 413, 417; see also, Jacoves v. United Merchandising Corporation (1992) 9 Cal.App.4th 88, 104 (“A physician is not an agent of a hospital merely because he or she is on the medical staff of the hospital.”). However, whether a party is an agent, representative, or stranger to an agreement can be decided on demurrer where the facts alleged in the complaint are conclusive. In Mintz v. Blue Cross of California (2009) 172 Cal.App.4th 1594, the plaintiff sued the claims administrator of a health insurance plan for interference with contract. The trial court sustained the administrator’s demurrer and the court of appeal affirmed, finding that the insurance contract, by its terms, established that the administrator was the insurer’s agent for purposes of administering the insurance contract. Id., at 1603; see also, Shoemaker v. Myers (1990) 52 Cal.3d 1, 25 (affirming demurrer where defendants were agents of employer vested with power to act for employer “rightly or wrongly” in terminating plaintiff’s employment).

Here, Malki cannot be deemed a “stranger” to the perfusion services agreement since the agreement specifically states that Malki would participate in evaluating Allied’s performance. Because Malki was acting as Cottage’s agent or representative in overseeing and evaluating Allied’s work under the agreement, he cannot be liable for interference with the agreement and his demurrer to the first cause of action will be sustained.

Allied’s second, fourth, and fifth causes of action for intentional interference with prospective economic advantage with Cottage, negligent interference with prospective economic advantage with Cottage, and inducing Cottage to breach the perfusion services agreement all fail for the same reason as the first cause of action as Malki was not a “stranger” to the contract or prospective financial arrangement. The interference and inducement causes of action are also fundamentally at odds with the history of such claims, which typically occur in cases between business competitors, as where entity A induces another to act in a way that harms entity B while benefiting entity A. See, e.g., Zimmerman v. Bank of America (1961) 191 Cal.App.2d 55 (action by real estate agent alleging that defendant bank had maliciously induced sellers to breach agreement with agent to broker the sale of their property). Here, there is no allegation that Malki was a competitor of Allied or that he was acting for his financial gain.

Allied’s third cause of action alleges intentional interference with prospective economic advantage with Valashinas. To state a cause of action for interference with prospective economic advantage, the plaintiff must allege (1) an economic relationship between the plaintiff and some third party with the probability of future economic benefit to the plaintiff, (2) the defendant’s knowledge of the relationship, (3) intentional or negligent acts on the part of the defendant designed to disrupt the relationship, (4) actual disruption of the relationship, and (5) economic harm to the plaintiff proximately caused by the acts of the defendant. Crown Imports, LLC v. Superior Court (2014) 223 Cal.App.4th 1395, 1404. When pleading a claim for interference with prospective economic advantage, the plaintiff must also allege that the defendant’s act that caused the interference was “independently wrongful,” i.e., that it was proscribed by some statutory, regulatory, common law, or other legal standard, and thus unlawful. Korea Supply Company v. Lockheed Martin Corporation (2003) 29 Cal.4th 1134, 1158. It is the plaintiff’s burden to plead that the defendant’s conduct was independently wrongful. Crown Imports, supra, at 1404.

The core allegations of Allied’s third cause of action are that Malki insisted that Allied retain Valashinas as a perfusionist, that in an attempt to appease Malki and Cottage, Allied offered a contract to Valashinas that was identical to contracts it had with other perfusionist subcontractors, that Malki requested that Allied remove a term from the proposed contract, that Malki reviewed the proposed contract and advised Valashinas not to sign it, that Valashinas declined to sign the contract due to Malki’s interference, that Cottage subsequently hired Valashinas as a staff perfusionist, and that Allied was harmed because it was unable to retain Valashinas’s services. (Comp., ¶¶ 20, 21, 22, 23, 24, 25, 67.) While such conduct may have interfered with Allied’s anticipated arrangement with Valashinas, none of it is independently unlawful or otherwise proscribed by statute, regulation, the common law, or other legal standard. Further, there is no contention that Malki’s “threats and false statements” (Comp., ¶17) caused Valashinas to reject Allied’s subcontractor agreement. Malki’s demurrer to the third cause of action will therefore be sustained.

Defendant’s demurrer to Allied’s sixth and final cause of action for trade libel will likewise be sustained. The essential elements of a claim for trade libel are (1) the defendant made a statement that disparaged the plaintiff’s products or services, (2) the statement was made to a person other than the plaintiff, (3) the statement was untrue, (4) the defendant knew the statement was untrue, (5) the defendant knew or should have recognized that someone else might act in reliance on the statement, and (6) the plaintiff suffered direct financial harm as a result of the defendant’s conduct. Polygram Records, Inc. v. Superior Court (1985) 170 Cal.App.3d 543, 548; CACI 1731. A claim for trade libel must be pled specifically and to survive a demurrer the complaint must set forth the specific statements alleged to be harmful. Industrial Waste & Debris Box Service, Inc. v. Murphy (2016) 4 Cal.App.5th 1135, 1157 (plaintiff’s complaint “patently insufficient” as it lacked any specification of the allegedly false statements on which the plaintiff’s tort claims were based); Vogel v. Felice (2005) 127 Cal.App.4th 1006, 1017, fn. 3 (“[T]he words constituting an alleged libel must be specifically identified, if not pleaded verbatim, in the complaint.”).

Allied contends that it has adequately alleged that Malki made false statements to Dr. Peter L. Baay and other staff at Cottage concerning the quality of Allied’s services, but the court disagrees. The broad, conclusory allegation that Malki “disparaged” Allied’s services (Comp., ¶85) is insufficient as a matter of law as it fails to set forth any of the specific statements that allegedly harmed Allied’s business. Industrial Waste, supra, at 1155, fn. 13 (“vague and conclusory” allegations that defendants made “numerous” unspecified “false statements” about plaintiff’s business that cast plaintiff “in a false light” not even minimally adequate to state a cause of action). Because Allied’s conclusory allegations are insufficient to support a claim for trade libel, Malki’s demurrer to the sixth cause of action will be sustained.

Based on the foregoing, defendant’s demurrer to plaintiff’s complaint will be sustained as each of plaintiff’s causes of action is either not actionable as a matter of law or factually deficient. Although the court questions whether Allied can state a viable claim against Malki under the facts in this case, because this was plaintiff’s first complaint, leave to amend will be granted. Any amended pleading shall be filed and served on or before December 6, 2019.