Case Name: Stanford Hospital & Clinics v. Pinnacle Claims Management, Inc., et al.
Case No.: 2015-1-CV-284950

Currently before the Court is defendant Sun-Maid Growers of California’s (“Sun-Maid”) demurrer to the first amended complaint (“FAC”) of plaintiff Stanford Hospital & Clinics (the “Hospital”).

On August 27, 2015, the Hospital filed its complaint against defendants Pinnacle Claims Management (“Pinnacle”) and Sun-Maid (collectively, “Defendants”), asserting two causes of action for quantum meruit and breach of an implied-in-fact contract. Sun-Maid filed a demurrer to the complaint, and the Court sustained the demurrer to each cause of action with leave to amend.

On January 20, 2016, the Hospital filed the operative FAC, asserting the same causes of action for quantum meruit and breach of an implied-in-fact contract. In the FAC, the Hospital alleges the following: On July 8, 2013, patient R.S., a member of a health plan organized, paid for or administered by Defendants, was admitted to the Hospital for medically necessary treatment. (FAC, ¶ 12.) At that time, the Hospital contacted Defendants’ agent, Blue Cross of California (“Blue Cross”), to verify R.S.’s eligibility and confirm that the treatment provided was medically necessary. (FAC, ¶¶ 10, 12.) Blue Cross advised the Hospital that Defendants’ plan authorized R.S.’s treatment. (FAC, ¶ 13.) In reliance on this authorization, the Hospital provided R.S. with medically necessary care. (FAC, ¶ 14.) In doing so, the Hospital “conferred a benefit upon Defendants because it allowed Defendants to make good on promises made to Patient R.S. that Patient R.S. would receive and be covered for medically necessary treatment….” (FAC, ¶ 15.) After discharging R.S., the Hospital submitted a bill to Defendants in the amount of $1,336,341.22. (FAC, ¶ 18.) Defendants refused to pay the bill on the ground that the treatment provided to R.S. was experimental and part of a clinical study. (FAC, ¶ 19.) As such, Defendants determined that the treatment was not compensable under R.S.’s health plan. (FAC, ¶ 19.) Defendants’ refusal to pay is without basis because they were not billed for any study-related charges and all services provided were within the standard of care. (FAC, ¶ 20.)

On February 25, 2016, Sun-Maid filed the instant demurrer to each cause of action in the FAC on the ground of failure to state sufficient facts to constitute a cause of action. (See Code Civ. Proc., § 430.10, subd. (e).)

A. Request for Judicial Notice

In support of its demurrer, Sun-Maid asks the Court to take judicial notice of the complaint, the Court’s order re: the demurrer to the complaint, and the FAC. The request is GRANTED. (See Evid. Code, § 452, subd. (d) [stating that a court may take judicial notice of court records].)

B. Demurrer to the First Cause of Action for Quantum Meruit

Sun-Maid contends that the first cause of action for quantum meruit fails because the FAC does not allege facts indicating that Sun-Maid was the intended beneficiary of R.S.’s treatment. Sun-Maid misrepresents the current state of California law. Under the common law, a plaintiff could not state a cause of action for quantum meruit where the defendant was not the intended or direct beneficiary of the plaintiff’s services. (Rotea v. Izuel (1939) 14 Cal.2d 605, 610.) However, in Earhart v. William Low Co. (1979) 25 Cal.3d 503, 511, the California Supreme Court abrogated this requirement, holding that the “performance of services at another’s behest may itself constitute [a] ‘benefit’ such that an obligation to make restitution may arise.” Accordingly, the first cause of action is not subject to demurrer on this basis.

Next, Sun-Maid argues that it cannot be liable under a quantum meruit theory because the FAC does not allege facts indicating that it ever requested that the Hospital treat R.S. In its opposition, the Hospital contends that Blue Cross’s authorization of the R.S.’s treatment itself constitutes an implied request for services.

“To recover in quantum meruit, a party need not prove the existence of a contract…, but it must show the circumstances were such that the services were rendered under some understanding or expectation of both parties that compensation therefor was to be made.” (Advanced Choices, Inc. v. Department of Health Services (2010) 182 Cal.App.4th 1661, 1673, internal citations omitted.) As such, a plaintiff must allege that the defendant made an explicit or implicit request for the performance of the particular service in question. (Day v. Alta Bates Medical Center (2002) 98 Cal.App.4th 243, 249.) Generally, a defendant’s mere acquiescence in the provision of services is sufficient to satisfy this requirement. (Producers Cotton Oil Co. v. Amstar Corp. (1988) 197 Cal.App.3d 638, 659.) However, “when the services are rendered by the plaintiff to a third person, the courts have required that there be a specific request therefor from the defendant: [C]ompensation for a party’s performance should be paid by the person whose request induced the performance.” (Day, supra, 98 Cal.App.4th at p. 249, internal citations omitted; see also Gateway Rehab and Wellness Center, Inc. v. Aetna Health of California, Inc. (C.D. Cal., Apr. 10, 2013, No. SACV 13-0087-DOC MLG) 2013 WL 1518240, at *4 [finding an implied request insufficient to state a cause of action for quantum meruit when benefit conferred by plaintiff on a third party].)

Here, the FAC alleges that “[b]y arranging for the provision of concurrent utilization review services rendered to Patient R.S. during the course of Patient R.S.’[s] stay at Stanford Hospital, Defendant impliedly requested that Stanford Hospital provide Patient R.S. medically necessary services and treatment.” (FAC, ¶ 23.) Under Day, supra, such an implied request is insufficient to meet this requirement. Accordingly, the first cause of action is subject to demurrer on this basis.

Given that there appears to be a reasonable possibility that the Hospital could allege that Blue Cross, acting as Sun-Maid’s agent, expressly requested that the Hospital treat R.S., leave to amend is warranted. (See Goodman v. Kennedy (1976) 18 Cal.3d 335, 349 [stating that a court should not sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment].) Accordingly, the demurrer to the first cause of action for quantum meruit is SUSTAINED WITH 10 DAYS’ LEAVE TO AMEND.

C. Demurrer to the Second Cause of Action for Breach of an Implied-In-Fact
Contract

Sun-Maid first argues that the demurrer to the second cause of action for breach of an implied-in-fact contract should be sustained because the FAC does not allege that the contract was supported by consideration. (See Chandler v. Roach (1957) 156 Cal.App.2d 435, 440 [stating that consideration is an element of a cause of action for breach of an implied-in-fact contract].) This argument lacks merit because the FAC specifically alleges the consideration supporting the agreement, namely, Sun-Maid’s implied promise to pay the Hospital’s bill in exchange for its provision of medically necessary services to R.S. (FAC, ¶ 19.)

Next, Sun-Maid contends that the FAC does not allege sufficient facts from which its alleged promise to pay the Hospital could be implied. (See California Emergency Physicians Medical Group v. PacifiCare of California (2003) 111 Cal.App.4th 1127, 1134 [stating that in order to plead a cause of action for implied contract, “the facts from which the promise is implied must be alleged”].)

“The only distinction between an implied-in-fact contract and an express contract is that, in the former, the promise is not expressed in words but is implied from the promisor’s conduct.” (Chandler, supra, 156 Cal.App.2d at p. 440.) Accordingly, a plaintiff must allege facts from which a factfinder could infer the parties’ mutual intention to contract. (Division of Labor Law Enforcement v. Transpacific Transportation Co. (1977) 69 Cal.App.3d 268, 277 [stating that “the very heart of an enforceable implied in fact contract is the mutual intention of the parties; hence the assumption, intention or expectation of either party alone can give rise to no inference of an implied contract”].) “Whether or not an implied contract has been created is determined by the act[s] and conduct of the parties and all the surrounding circumstances involved and is a question of fact.” (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal.App.3d 593, 611.)

Here, the FAC alleges that Blue Cross verified that Sun-Maid’s health plan covered R.S. for medically necessary care, determined that the Hospital’s proposed treatment was medically necessary, and authorized the Hospital to perform the treatment on Sun-Maid’s behalf. (FAC, ¶ 32.) Under these circumstances, a reasonable factfinder could infer that Sun-Maid, acting through its agent Blue Cross, manifested an intention to contract with the Hospital for R.S.’s treatment. (See Regents of University of California v. Principal Financial Group (N.D. Cal. 2006) 412 F.Supp.2d 1037, 1042 [holding that a reasonable jury could find that an insurer manifested an intention to be bound to an implied-in-fact contract with a hospital for treatment of a patient where it verified the patient’s insurance and authorized treatment].)

In reply, Sun-Maid acknowledges that the allegations concerning Blue Cross’s authorization of treatment might be sufficient to allege an implied-in-fact contract. (Reply, p. 5:4-16.) However, it claims that the FAC fails to allege specific facts demonstrating that Blue Cross is, in fact, its agent. This argument is not well-taken because “[t]he general allegation of agency is one of ultimate fact, sufficient against a demurrer.” (Kiseskey v. Carpenters’ Trust for So. California (1983) 144 Cal.App.3d 222, 230; see also Skopp v. Weaver (1976) 16 Cal.3d 432, 437 [finding that “numerous cases have held a pleading of agency an averment of ultimate fact”]; Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 886 [stating that “an allegation of agency is deemed an allegation of ultimate fact”].) Since the FAC alleges the ultimate fact that Blue Cross is Sun-Maid’s agent, the second cause of action is not subject to demurrer on this basis.

In light of the foregoing, the Hospital alleges sufficient facts to constitute a cause of action for breach of an implied-in-fact contract. Accordingly, the demurrer to the second cause of action is OVERRULED.