Case Number: BC517979 Hearing Date: June 09, 2014 Dept: 34

Moving Party: Plaintiffs AIDS Healthcare Foundation (“AHF” or “plaintiff”)

Resp. Party: Defendant County of Los Angeles (“County” or “defendant”)

Plaintiff’s motion for leave to file a first amended complaint is GRANTED.

BACKGROUND:

Plaintiffs commenced this action on 8/12/13 against defendants for: (1) violations of Article 1, Section 2, of the California Constitution; (2) violations of Gov. Code, § 9149.23; and (3) declaratory relief. AHF treats and advocates for patients in the County and abroad. (Compl., ¶¶ 4, 6.) Weinstein is the co-founder and president of AHF. (Id., ¶ 7.) This advocacy has at times conflicted with the positions taken by defendants, resulting in plaintiffs publicly criticizing defendants. (Ibid.) Plaintiffs allege that defendants have retaliated against plaintiffs for this criticism, which included creating incorrect audit findings and demanding significant amounts of money from AHF based on these findings, and discussing these incorrect audit findings with other providers and the public at large. (Id., ¶ 5.)

The County is the statutory grantee of funds related to the treatment of HIV/AIDS (“AIDS Funds”), and therefore must comply with certain statutory requirements. (Compl., ¶¶ 16-23.) AHF has entered into several contracts with the County to provide care to County residents. (Id., ¶ 24-27.) Plaintiffs allege defendants have a history of retaliating against plaintiffs for their public activism, which included, but was not limited to, hindering plaintiffs’s ability to compete for the AIDS Funds. (Id., ¶¶ 28-39.)

In 2002, defendants engaged in unfair contracting practices after AHF criticized the County for having various conflicts of interest that impinged upon its duties to allocate the AIDS Funds in a fair and reasonable way. (Compl., ¶¶ 40-45.) In 2005, defendants directed the County’s Auditor-Controller to audit AHF’s contract with the County to provide hospice care services at Carl Bean House, allegedly in retaliation for plaintiffs’ criticism of certain County employees. (Id., ¶¶ 46-53.) As a result, the County claimed that AHF owed it $348,000.00 for overcharges related to the Carl Bean House; plaintiffs allege this was a result of the County changing its interpretation of the contract. (Id., ¶¶ 54-57.) Also in 2005, defendants failed to submit a renewal contract to AHF for hospice care for patients, allowing these services to lapse, and ultimately proposing a drastically and materially altered contract. (Id., ¶¶ 58-62.) In 2005 and 2006, the County allegedly falsely accused AHF of financial improprieties in a letter sent to other HIV/AIDS service providers, resulting in the other providers publicly advocating against AHF’s receipt of the AIDS Funds. (Id., ¶¶ 63-68.) In 2007 and 2008, the County opposed AHF’s proposal that 75% of the AIDS Funds go to “core medical services.” (Id., ¶ 69.) Shortly after the 75% requirement was imposed, the County cut $1 million from its annual budget. (Id., ¶ 70.) In 2009, defendants discontinued funding to AHF for services to the Antelope Valley, allegedly in retaliation for AHF advocating that the County should take action to reduce the risk of sexually transmitted diseases in the pornography industry. (Id., ¶¶ 71-83.) In 2011, when AHF was the only entity that responded to a request for proposal to determine whether there was a need for certain services, defendants decided not to offer any such services to patients anymore. (Id., ¶¶ 84-85.) From 2010 through 2012, defendant continually made false statements and claims related to the AIDS Funds and their allocation of these funds. (Id., ¶¶ 86-90.) Plaintiffs allege that defendants have retaliated against them because of their advocacy for Measure B, which requires the use of condoms in the pornography industry. (Id., ¶¶ 91-101.) From 2010 through 2012, defendants allegedly violated competitive bidding laws by awarding a $75 million per year contract for pharmacy administrator services to a private party on a non-competitive basis. (Id., ¶¶ 102-104.) Plaintiffs brought a state court action and the Court issued a ruling that the County had abused its discretion and granted a writ of mandate compelling the County to void the contract. (Id., ¶¶ 105-111.) As a result, an agent of the County publicly and negatively discussed the lawsuit, causing members of the HIV Commission to become angry with AHF for filing the lawsuit. (Id., ¶¶ 112-116.) Defendants have repeatedly engaged in audits of plaintiffs’ facilities and contracts, each time shortly after plaintiffs criticized defendants, which resulted in claims that plaintiffs owed defendants significant amounts of money. (Id., ¶¶ 117-138.) Defendants allegedly used these incorrect audit findings to injure plaintiffs’ reputation and to intimidate service providers. (Id., ¶¶ 139-146.) Plaintiffs allege defendants retaliated against them for circulating a petition to create an independent health department in the City of Los Angeles. (Id., ¶¶ 147-159.)

On 2/14/14, the County filed a cross-complaint against AHF for breach of contract.

On 2/27/14, the Court sustained defendants’ demurrer to the first and second causes of action in the complaint, without leave to amend, and overruled the demurrer to the third cause of action for declaratory relief.

ANALYSIS:

Procedural Analysis

Under California Rules of Court rule 3.1324(a):

(a) A motion to amend a pleading before trial must: [¶] (1) Include a copy of the proposed amendment or amended pleading, which must be serially numbered to differentiate it from previous pleadings or amendments; [¶] (2) State what allegations in the previous pleading are proposed to be deleted, if any, and where, by page, paragraph, and line number, the deleted allegations are located; and [¶] (3) State what allegations are proposed to be added to the previous pleading, if any, and where, by page, paragraph, and line number, the additional allegations are located.

Subdivision (b) of rule 3.1324 requires the motion be accompanied by a separate declaration, specifying: (1) the amendment’s effect, (2) why the amendment is necessary and proper, (3) when the facts giving rise to the amended allegations were discovered, and (4) the reasons why the request for amendment was not made earlier.

Plaintiff provides a proposed first amended complaint (“FAC”). In the notice of motion, plaintiff discusses the changes to be made in the FAC. (See Notice., pp. 2-6.)

Plaintiff provides a declaration. The declaration describes the amendment’s effect. (See Azulay Decl., ¶ 2.) The declaration states that the amendment is necessary and proper so that AHF can adjudicate controversies related to the entire contract with the County. (Id., ¶ 3.) The facts giving rise to the amendment were learned in September 2013 and were reinforced in March 2014. (Id., ¶ 2.) The declaration states that the request for amendment was not made earlier because AHF did not know that there was an actual controversy with regard to other contract amendments until September 2013 and March 2014. (Ibid.)

Substantive Analysis

California Code of Civil Procedure section 473, subd. (a)(1) states: “The court may . . . , in its discretion, . . . allow, upon any terms as may be just, an amendment to any pleading or proceeding.” Although granting the motion is entirely within the Court’sscretion, denial is rarely justified:

If the motion to amend is timely made and the granting of the motion will not prejudice the opposing party, it is error to refuse permission to amend and where the refusal also results in a party being deprived of the right to assert a meritorious cause of action or a meritorious defense, it is not only error, but an abuse of discretion.

(Morgan v. Sup. Ct. (1959) 172 Cal.App.2d 527, 530.)

To the extent that defendant attacks the validity of the proposed amended pleadings, this argument is not well taken. The Court is “bound to apply a policy of great liberality in permitting amendments to the complaint ‘at any stage of the proceedings, up to and including trial,’ absent prejudice to the adverse party.” (Weil & Brown, Cal. Prac. Guide: Civ. Proc. Before Trial (The Rutter Group 2013) ¶ 6:652 [quoting Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761][emphasis in original].) A court ordinarily will not consider the validity of the proposed amended pleading in deciding whether to grant leave to amend, and grounds for demurrer or motion to strike are premature. (Id., ¶ 6:644.) If the allegations in the proposed FAC are insufficient or without merit, defendant may challenge them with a demurrer or motion for summary judgment. (See Atkinson v. Elk Corp. (2006) 109 Cal.App.4th 739, 760 [“the better course of action would have been to allow . . . [plaintiff] to amend the complaint and then let the parties test its legal sufficiency in other appropriate proceedings.”].)

Defendants argue the motion to amend should be denied “ because virtually all of the allegations in the Proposed First Amended Complaint concern AFH’s retaliation claims.” (Opp., p. 1:23-24.) This does not appear to the court to be correct. The caption to the proposed First Amended Complaint explicitly deletes the words “based on retaliatory conduct and violation of constitutional rights” (see redlined version of FAC, attached as Exh. A to Azulay Declaration) and the FAC does not appear to re-assert the cause of action for retaliation.

A court can deny leave to amend after long, inexcusable delay, where there is cognizable prejudice, such as discovery needed, trial delay, critical evidence lost, or added preparation expense. (Solit v. Tokai Bank (1999) 68 Cal.App.4th 1435, 1448; Atkinson v. Elk Corp. (2003) 109 Cal.App.4th 739, 761; Green v. Rancho Santa Margarita Mortgage Co. (1994) 28 Cal.App.4th 686, 692; Magpali v. Farmers Group, Inc. (1996) 48 Cal.App.4th 471, 487.

There is no showing that plaintiff unreasonably delayed in bringing this motion or that the parties will be prejudiced. Trial is over nine months away and there is no indication that the parties do not have time to engage in discovery or motion practice as to the proposed amendment. The fact that defendant would have to respond to the new allegations does not constitute cognizable prejudice. Defendant provides no evidence to support its assertion that additional discovery could jeopardize the current trial date.

Plaintiff’s motion for leave to amend is GRANTED.