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This case was last updated from Los Angeles County Superior Courts on 05/09/2021 at 11:02:46 (UTC).

DUAL DIAGNOSIS TREATMENT CENTER VS. HEALTH NET, INC., ET AL

Case Summary

On 06/30/2016 DUAL DIAGNOSIS TREATMENT CENTER filed a Contract - Other Contract lawsuit against HEALTH NET, INC . This case was filed in Los Angeles County Superior Courts, Van Nuys Courthouse East located in Los Angeles, California. The Judges overseeing this case are VIRGINIA KEENY, SHIRLEY K. WATKINS and HUEY P. COTTON. The case status is Pending - Other Pending.

Case Details Parties Documents Dockets

 

Case Details

  • Case Number:

    ****4357

  • Filing Date:

    06/30/2016

  • Case Status:

    Pending - Other Pending

  • Case Type:

    Contract - Other Contract

  • Court:

    Los Angeles County Superior Courts

  • Courthouse:

    Van Nuys Courthouse East

  • County, State:

    Los Angeles, California

Judge Details

Presiding Judges

VIRGINIA KEENY

SHIRLEY K. WATKINS

HUEY P. COTTON

 

Party Details

Plaintiffs and Cross Defendants

VEDANTA LABORATORIES INC.

DUAL DIAGNOSIS TREATMENT CENTER INC.

SATYA HEALTH OF CALIFORNIA INC.

SOVEREIGN ASSET MANAGEMENT INC.

SHREYA HEALTH OF FLORIDA INC.

SOVEREIGN HEALTH OF FLORIDA INC.

SHREYA HEALTH OF CALIFORNIA INC.

SHREYA HEALTH OF ARIZONA INC.

ADEONA HEALTHCARE INC.

SOVEREIGN HEALTH OF PHOENIX INC.

PEOPLE FOR PEOPLE LLC A CALIFORNIA LIMITED LIABILITY COMPANY

MEDICAL CONDIERGE INC.

MAXIM MANAGEMENT GROUP INC. A CALIFORNIA CORPORATION

Claimant

SAN CLEMENTE RRM LLC

Defendants and Cross Plaintiffs

DOES 1-10

HEALTH NET OF CALIFORNIA INC.

HEALTH NET LIFE INSURANCE COMPANY

MANAGED HEALTH NETWORK INC.

HEALTH NET INC.

MAXIM MANAGEMENT GROUP INC. A CALIFORNIA CORPORATION

Not Classified By Court

TEST PARTY FOR TRUST CONVERSION

18 More Parties Available

Attorney/Law Firm Details

Plaintiff and Cross Defendant Attorneys

STRIS PETER K.

ROBBINS JOSHUA M

KANTOR & KANTOR LLP

KANTOR LISA S.

DAWSON SANDER R.

DAWSON STEVEN C.

ROSENTHAL ANITA

GREENBERG ALAN

FRANCISCONI ERIC P.

FITZGERALD MICHAEL

Claimant Attorney

PARRET CHARLES WILLIAM

Cross Defendant and Defendant Attorneys

FRANCISCONI ERIC P.

FITZGERALD MICHAEL

PIMSTONE GREGORY NEIL

HERNANDEZ ILEANA MARIA

ROBINSON GREGORY E

Cross Plaintiff Attorney

JULIAN KENNETH B.

Other Attorneys

MOUSAVI AMY AZITA

RENTTO DAVID A.

WULKAN JEFFREY ERIC

SMITH JENNIFER A.

MCNALLY JOSEPH TIMOTHY

 

Court Documents

Amended Complaint

4/9/2019: Amended Complaint

Memorandum of Points & Authorities

3/12/2019: Memorandum of Points & Authorities

Declaration - DECLARATION DECLARATION OF JESSAMYN VEDRO SUPPORTING HEALTH NETS OPPOSITION

5/4/2021: Declaration - DECLARATION DECLARATION OF JESSAMYN VEDRO SUPPORTING HEALTH NETS OPPOSITION

Notice of Motion

4/14/2021: Notice of Motion

Reply - REPLY REPLY IN SUPPORT OF MSA RE PROMISSORY ESTOPPEL AND UCL

4/15/2021: Reply - REPLY REPLY IN SUPPORT OF MSA RE PROMISSORY ESTOPPEL AND UCL

Minute Order - MINUTE ORDER (INFORMAL DISCOVERY CONFERENCE (IDC) BY HEALTH NET)

3/23/2021: Minute Order - MINUTE ORDER (INFORMAL DISCOVERY CONFERENCE (IDC) BY HEALTH NET)

Declaration - DECLARATION DECLARATION OF LISA-NOELLE LEGARE IN SUPPORT OF HEALTH NET LIFE INSURANCE COMPANYS OPPOSITION TO CROSS-DEFENDANTS MOTION FOR SUMMARY ADJUDICATION OF THE FIFTH CAUSE OF ACTI

12/29/2020: Declaration - DECLARATION DECLARATION OF LISA-NOELLE LEGARE IN SUPPORT OF HEALTH NET LIFE INSURANCE COMPANYS OPPOSITION TO CROSS-DEFENDANTS MOTION FOR SUMMARY ADJUDICATION OF THE FIFTH CAUSE OF ACTI

Notice of Lodging - NOTICE OF LODGING HEALTH NET LIFE INSURANCE COMPANYS NOTICE OF LODGING RELATED TO HEALTH NET LIFE INSURANCE COMPANYS OPPOSITION TO CROSS-DEFENDANTS MOTION FOR SUMMARY ADJUDICATI

12/1/2020: Notice of Lodging - NOTICE OF LODGING HEALTH NET LIFE INSURANCE COMPANYS NOTICE OF LODGING RELATED TO HEALTH NET LIFE INSURANCE COMPANYS OPPOSITION TO CROSS-DEFENDANTS MOTION FOR SUMMARY ADJUDICATI

Notice - NOTICE NOTICE OF ENTRY OF ORDER ON STIPULATION TO CHANGE THE SECURITY LEVEL OF CERTAIN DOCUMENTS FILED IN CONNECTION WITH PLAINTIFFS AND CROSS DEFENDANTS MOTION FOR SUMMARY ADJUDICATION OF HE

9/8/2020: Notice - NOTICE NOTICE OF ENTRY OF ORDER ON STIPULATION TO CHANGE THE SECURITY LEVEL OF CERTAIN DOCUMENTS FILED IN CONNECTION WITH PLAINTIFFS AND CROSS DEFENDANTS MOTION FOR SUMMARY ADJUDICATION OF HE

Declaration - DECLARATION DECLARATION OF MELODY YEN IN SUPPORT OF SOVEREIGNS OPPOSITION TO HEALTH NETS MOTION FOR SUMMARY ADJUDICATION-FAILURE TO STATE A CLAIM-BREACH OF CONTRACT AND BAD FAITH RE OR

7/17/2020: Declaration - DECLARATION DECLARATION OF MELODY YEN IN SUPPORT OF SOVEREIGNS OPPOSITION TO HEALTH NETS MOTION FOR SUMMARY ADJUDICATION-FAILURE TO STATE A CLAIM-BREACH OF CONTRACT AND BAD FAITH RE OR

Objection - OBJECTION DEFENDANTS' AND CROSS-COMPLAINANT'S OBJECTIONS TO DECLARATIONS OF TIMOTHY J. ROZELLE AND LUISA E. DAVIS

10/10/2019: Objection - OBJECTION DEFENDANTS' AND CROSS-COMPLAINANT'S OBJECTIONS TO DECLARATIONS OF TIMOTHY J. ROZELLE AND LUISA E. DAVIS

Commission to Take Deposition Outside California

8/21/2019: Commission to Take Deposition Outside California

Legacy Document - LEGACY DOCUMENT TYPE: ORDER

3/20/2017: Legacy Document - LEGACY DOCUMENT TYPE: ORDER

Legacy Document - LEGACY DOCUMENT TYPE: OPPOSITION

5/2/2017: Legacy Document - LEGACY DOCUMENT TYPE: OPPOSITION

Legacy Document - LEGACY DOCUMENT TYPE: MOTION TO COMPEL

3/28/2018: Legacy Document - LEGACY DOCUMENT TYPE: MOTION TO COMPEL

Declaration in Support of Ex Parte Application

3/19/2019: Declaration in Support of Ex Parte Application

1,181 More Documents Available

 

Docket Entries

  • 10/04/2021
  • Hearing10/04/2021 at 09:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Jury Trial

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  • 09/10/2021
  • Hearing09/10/2021 at 09:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Final Status Conference

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  • 07/23/2021
  • Hearing07/23/2021 at 13:30 PM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Further Status Conference

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  • 06/15/2021
  • Hearing06/15/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion to Compel Deposition of Third Party

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  • 06/15/2021
  • Hearing06/15/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion for Protective Order

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  • 06/15/2021
  • Hearing06/15/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion to Compel Deposition of Third Party

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  • 05/17/2021
  • Hearing05/17/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion to Compel Discovery (not "Further Discovery")

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  • 05/17/2021
  • Hearing05/17/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion for Protective Order

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  • 05/17/2021
  • Hearing05/17/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion for Protective Order

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  • 05/17/2021
  • Hearing05/17/2021 at 08:30 AM in Department W at 6230 Sylmar Ave., Van Nuys, CA 91401; Hearing on Motion to Compel Further Discovery Responses

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1,478 More Docket Entries
  • 08/17/2016
  • DocketMiscellaneous; Filed by Health Net Life Insurance Company (Defendant); Health Net of California, Inc. (Defendant); Health Net, Inc. (Defendant)

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  • 08/17/2016
  • DocketStipulation & Order; Filed by Health Net Life Insurance Company (Defendant); Health Net of California, Inc. (Defendant); Health Net, Inc. (Defendant) et al.

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  • 07/08/2016
  • DocketProof of Service of Summons and Complaint; Filed by Adeona Healthcare, Inc. (Plaintiff); Dual Diagnosis Treatment Center, Inc. (Plaintiff); Satya Health of California, Inc. (Plaintiff) et al.

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  • 07/08/2016
  • DocketProof of Service of Summons and Complaint; Filed by Adeona Healthcare, Inc. (Plaintiff); Dual Diagnosis Treatment Center, Inc. (Plaintiff); Satya Health of California, Inc. (Plaintiff) et al.

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  • 07/08/2016
  • DocketProof of Service of Summons and Complaint; Filed by Adeona Healthcare, Inc. (Plaintiff); Dual Diagnosis Treatment Center, Inc. (Plaintiff); Satya Health of California, Inc. (Plaintiff) et al.

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  • 07/08/2016
  • DocketProof of Service of Summons and Complaint; Filed by Adeona Healthcare, Inc. (Plaintiff); Dual Diagnosis Treatment Center, Inc. (Plaintiff); Satya Health of California, Inc. (Plaintiff) et al.

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  • 06/30/2016
  • DocketNotice of Case Management Conference; Filed by Clerk

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  • 06/30/2016
  • DocketSummons; Filed by Adeona Healthcare, Inc. (Plaintiff); Dual Diagnosis Treatment Center, Inc. (Plaintiff); Satya Health of California, Inc. (Plaintiff) et al.

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  • 06/30/2016
  • DocketCivil Case Cover Sheet; Filed by Dual Diagnosis Treatment Center, Inc. (Plaintiff)

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  • 06/30/2016
  • DocketComplaint; Filed by Adeona Healthcare, Inc. (Plaintiff); Dual Diagnosis Treatment Center, Inc. (Plaintiff); Satya Health of California, Inc. (Plaintiff) et al.

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Tentative Rulings

Case Number: LC104357    Hearing Date: May 6, 2021    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

sovereign’s motion for leave to file third amended complaint

Date of Hearing: May 6, 2021 Trial Date: October 4, 2021

Department: W Case No.: LC104357

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (collectively “Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (collectively “Health Net”). Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

Health Net successfully sought leave to file a First Amended Cross Complaint (FAXC). The new pleading added new defendants, Mohases, Mazim Management Group, Inc, DRMW, In and People for People, LLC (collectively “Mohases Entities”). The Mohases entities are alleged to be body brokers. Health Net also added additional allegations regarding wrongful conduct of cross defendants.

Sovereign now moves the court for an order granting Sovereign leave to file a third amended complaint.

[Tentative] Ruling

Sovereigns Motion for Leave to Amend to File Third Amended Complaint is GRANTED.

DISCUSSION

Sovereign moves this court for an order granting Sovereign leave to file a third amended complaint (“TAC”). Sovereign contends the proposed TAC (1) merges the first and second causes of action for breach of contract to apply to all Stipulated Patients, (2) merges the fifth and sixth causes of action for bad faith into a new Count 2 for bad faith as to all Stipulated Patients and (3) converts the fifth cause of action into a cause of action for denial of benefits under the ERISA as it applies to 30 Stipulated Patients and preserves the rights of 9 Stipulated Patients who claims will be renewed following dismissal with Sovereign’s April 15, 2021 re-filing of a motion to amend the Court’s October 13, 2020 ruling.

When a party moves to amend a pleading, “courts generally should permit amendment to the complaint at any stage of the proceedings, up to and including trial. [Citations.]” (Melican v. Regents of University of California (2007) 151 Cal.App.4th 168, 175.) In ruling on this type of motion, prejudice to another party is the main concern. (Hirsa v. Superior Court (1981) 118 Cal.App.3d 486.) The type of prejudice the court is to be concerned with should be something beyond simply having to cope with a potentially successful new legal theory of recovery that has been revealed during discovery. (Ibid.) Instead, the court should look for delays in the trial date, loss of critical evidence, extensive increase in the costs of preparation and other similar circumstances that create prejudice to another party. (Melican, supra, 151 Cal.App.4th at p. 176.)

A party requesting leave to amend must also comply with CRC Rule 3.1324, by including a copy of the proposed amended pleading and attaching a declaration by Plaintiff’s counsel, as to (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) why the request was not made earlier.

Sovereign has included a copy of the proposed amendment (Kantor Decl., Exh. A). However, counsel for Sovereign does not include in her declaration (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) why the request was not made earlier.

Instead, the memorandum of points and authorities state the amendment will allow Sovereign to bring an ERISA bench trial as to the claims of these 30 ERISA Patients, including 9 patients whose claims were dismissed in the Court’s October 13, 2020 Ruling on Health Net’s Motion for Summary Adjudication. (CRC Rule 3.1324(b)(1),(2).) Sovereign claims the finalized “updated spreadsheet matching the patients at issue in this case with their respective Evidence of Coverage (EOC) or other policy form” gave no indication that any of the policies were governed by ERISA and were not identified as ERISA plans by Health Net for another two years. (CRC Rule 3.1324(b)(3).) Specifically, when the parties met and conferred on potential stipulated facts, including patients who were covered by ERISA-governed plans in mid-June 2020. (Kantor Decl. ¶10.)

Thereafter, the court heard Health Net’s motion for summary adjudication of their affirmative defense of failure to state a claim with respect to plaintiffs’ breach of contract and bad faith causes of action as they pertain to Oregon and Arizona health insurance policies. The court entered summary adjudication for Health Net as to all 19 insureds at issue in the motion, including the Nine Oregon/Arizona ERISA insureds and as a result, Sovereign brought a motion to amend the court’s October 13, 2020 ruling as to 19 patients whose policies were issued in Arizona and Oregon; however, on March 2, 2021, the court ruled against Sovereign’s motion to amend holding that there was “no basis for amending its initial ruling on the motion for summary adjudication” and Sovereign’s vehicle to bring the ERISA claims would be seek leave to amend the SAC. Now, Sovereign seeks to amend the SAC so that it may have the court conduct bench trials on the ERISA claims of 30 patients which were previously unidentified by Health Net as claims governed by ERISA until December 8, 2020. (CRC Rule 3.1324(b)(4).)

The court notes Health Net only opposes the motion in part. Health Net argues this court has already dismissed Sovereign’s claims as to nine of these patients, finding that their policies contained anti-assignment clauses prohibiting Sovereign from pursuing the claims as assignee, and that Health Net had not waived the right to assert the anti-assignment clauses as a defense to Sovereign’s lawsuit. As a result, Sovereign’s leave to amend to state an ERISA cause of action as to the claims of the nine Oregon/Arizona ERISA insureds should be denied because that amendment would be futile.

When “no prejudice is shown to the adverse party, the liberal rule of allowance prevails.”¿(Higgins v. Del Faro (1981) 123 Cal.¿App.¿3d 558, 564.)¿Thus, leave to amend may only properly be denied when: (1) the proposed amendment is futile; (2) the amending party has not exercised due diligence and has inexplicably delayed bringing the proposed amendment; or (3) the opposing party would otherwise be unfairly prejudiced by the amendment. (See Howard v.¿Cnty. of San Diego (2010) 184 Cal. App. 4th 1422, 1423;¿Huff v. Wilkins (2006) 138 Cal. App. 4th 732, 746; Roemer v. Retail Credit Co. (1975) 44 Cal. App. 3d 926, 939.)

Health Net argues the amendment to the nine Oregon/Arizona ERISA insureds would be futile because the court previously found the policies of these individuals have enforceable anti-assignment clauses. (See Spinedex Physical Therapy USA Inc. v. United Healthcare of Arizona, Inc. (9th Cir. 2014) 770 F.3d 1282, 1296.) Additionally, Health Net contends, a plan that raises a valid anti-assignment provision for the first time as a defense in litigation challenging the assignee’s right to sue need not have raised the clause as a defense to payment during the claims adjudication process in order to preserve the argument. Health Net cites to several cases to support its contention including Eden Surgical Center v. Cognizant Tech. Solutions Corp. (8th Cir. 2018) 720 Fed. Appx. 862 and Brand Tarzana Surgical Inst., Inc. v. International Longshore & Warehouse UnionPacific Maritime Ass’n Welfare Plan (9th Cir. 2017) 706 Fed. Appx. 442.

In Eden, the court held “[w]hile it is true that a ‘plan administrator may not fail to give a reason for a benefits denial during the administrative process and then raise that reason for the first time when the denial is challenged in federal court,’ Harlick v. Blue Shield of Cal., 686 F.3d 699, 719 (9th Cir. 2012), that is not what happened here. Defendants raised the anti-assignment provision after the suit commenced to contest Eden’s standing to sue, not as a reason to deny benefits. In fact, as the district court properly noted, no benefits were payable here because the beneficiary’s deductible had not been met. In addition, although Eden takes issue with Defendants’ pre-litigation conduct—in particular, its silence in response to Eden’s administrative appeals—Eden cites no authority for the proposition that Defendants had an affirmative duty to make it aware of the anti-assignment provision. For these reasons, waiver is inapplicable.” (Eden Surgical Center v. Cognizant Technology Solutions Corp. (9th Cir. 2018) 720 Fed.Appx. 862, 863.) As a result, “[b]ecause the anti-assignment provision is valid and enforceable, Eden lacks derivative standing to sue.” (Id.)

In Brand Tarzana, the court again cited to the rule that “[a] plan administrator may not fail to give a reason for a benefits denial during the administrative process and then raise that reason for the first time when the denial is challenged in federal court.” (Brand Tarzana Surgical Institute, Inc. v. International Longshore and Warehouse Union-Pacific Maritime Association Welfare Plan (9th Cir. 2017) 706 Fed.Appx. 442, 443.) The court held, however, the anti-assignment provision is a litigation defense, not a substantive basis for claim denial. (Id.) As a result, the International Longshore and Warehouse Union did not need to raise it during the claim administration process and did not waive the provision through its course of dealing with Brand. Specifically, because there was no evidence that the International Longshore and Warehouse Union took action inconsistent with the anti-assignment provision or that they were aware, or should have been aware, that Brand was acting as an assignee. (Id. at p. 443-444.)

Health Net tries to distinguish these cases, and the case at hand, from the newly, published case Beverly Oaks Physicians Surgical Center, LLC v. Blue Cross and Blue Shield of Illinois (9th Cir. 2020) 983 F.3d 435. Health Net notes as Beverly Oaks explained, Eden’s “holding . . . does not conflict with Spinedex.” (Beverly Oaks, 983 F.3d at 441.) Nor does Brand Tarzana “undermine Spinedex’s holding that an insurer or claim administrator may waive the ability to raise an antiassignment provision as a defense when they take action inconsistent with that provision or are aware that the claimant is acting as an assignee.” (Beverly Oaks, 983 F.3d at 441.)

The court finds amendment to the Second Amended Complaint to assert ERISA claims for these 9 patients would not be so futile to deny Sovereign’s motion for leave to amend. As noted by Sovereign, while the court previously addressed these issues under relevant state law, the court has not examined these issues under relevant federal ERISA common law. Moreover, the Ninth Circuit’s most recent decision in Beverly Oaks supports Sovereign’s position that it may pursue the ERISA claims of these 9 patients and there may be a triable issue as to whether Health Net did in fact waive its rights to assert the applicable plan anti-assignment provisions in this litigation.

In Beverly Oaks, the court clarified its position in Brand by acknowledging although an “anti-assignment provision ... is a litigation defense, not a substantive basis for claim denial … [t]hat statement, however, does not undermine Spinedex’s holding that an insurer or claim administrator may waive the ability to raise an anti-assignment provision as a defense when they take action inconsistent with that provision or are aware that the claimant is acting as an assignee.” (Beverly Oaks, supra, 983 F.3d at p. 441.) The court in Beverly Oaks similarly found Eden unavailing on the grounds “[a]bsent from Eden Surgical Center and Brand Tarzana is a rationale for condoning an insurer or plan administrator's course of conduct in failing to raise the anti-assignment provision during the administrative claims process and then later asserting that provision as a “litigation defense” to avoid payment of benefits.” (Id.) The court further held relying on Eden Surgical Center and Brand Tarzana to accept the “litigation defense” as a basis to deny waiver leaves an insurer or plan administrator unaccountable for prior conduct contrary to its litigation position. (Id.)

Because Sovereign’s proposed cause of action is not facially deficient, and Health Net’s arguments are better suited for a fully argued demurrer, the court does not deny the motion on these grounds.

Accordingly, Sovereign’s motion for leave to amend to file a third amended complaint is GRANTED.

Case Number: LC104357    Hearing Date: January 13, 2021    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

health net’s motion for clarification regarding the court’s november 20, 2020 order

Date of Hearing: January 13, 2021 Trial Date: June 1, 2021

Department: W Case No.: LC104357

BACKGROUND

Defendants move for clarification of the court’s November 20, 2020, order on Sovereign’s Motion to Compel Production of Documents in Response to Sovereign’s Sixth Set of Requests for Production.

EVIDENTIARY OBJECTIONS

Health Net submits evidentiary objections to the Declaration of Timothy J. Rozelle submitted in support of Sovereign’s Opposition to Health Net’s Motion for Clarification of the Court’s November 20, 2020 Order.

As a preliminary matter, Health Net requests this court strike Mr. Rozelle’s declaration in its entirety on the grounds the declaration relates solely to issues that are irrelevant to Health Net’s Motion (Evid. Code §§210, 350); the declaration is replete with assumptions and speculation about subjects as to which Mr. Rozelle has no personal knowledge or foundation (Evid. Code §§403(a)(2), 702, 803); and the declaration contains multiple, patently false statements that directly contradict (or ignore) Health Net’s verified discovery responses.

The court overrules objections 1 – 7.

DISCUSSION

Health Net seeks clarification of this court’s November 20, 2020, order on Sovereign’s Motion to Compel Production of Documents in Response to Sovereign’s Sixth Set of Requests for Production (“Order”). Specifically, Health Net seeks clarification from the court regarding whether the Order (1) requires Health Net to produce documents that were provided to the government only if such documents are responsive to Sovereign’s requests for production (“RFP”) 213-217, 220-228, or 230-234, on which the court granted Sovereign’s motion, or (2) requires Health Net to separately produce to Sovereign the 11 confidential reports (the “11 Subpoenaed PI Reports”) requested by the government pursuant to the December 19, 2019, grand jury subpoena (the “D-GJS”) even if they are not responsive to RFPs 213-217, 220-228, or 230-234. Health Net also seeks guidance from the court on how to ensure any “production will ensure that one cannot discern which materials were provided to the Department of Justice and which were not.”

RFP 212 explicitly requests “All DOCUMENTS YOU produced in response to the Federal Grand Jury Subpoena attached to Ken Julian’s January 3, 2020 letter, a copy of which is attached hereto as Exhibit A.”

The court denied the request on the grounds that although Sovereign demonstrated good cause for the documents as they contain information about eleven key witnesses in this case, the request was framed in a way that would reveal how Health Net complied with a grand jury subpoena. As a result, the court denied the request with instructions. The court explicitly ordered:

Sovereign's request as to RFP No. 212 is DENIED but with the following instructions. The court finds that Health Net has waived the privilege as to any documents turned over to the U.S. Attorney's office as part of the grand jury investigation. The court agrees with the U.S. Attorney, however, that plaintiff is not entitled to know what was turned over or communications between the subpoenaed party and the U.S. Attorney. Rather, any documents that were turned over no longer are entitled to be withheld and must be produced in response to the RFPs 213-217, 220-228, and 230 234 without further delay. Defendant does not need to respond further to RFP 212 (as it is framed in a way that would reveal how Health Net complied with a grand jury subpoena). Defendant is directed that all documents provided to the U.S. Attorney are now unprotected by any privilege and must be produced; however, care should be taken to produce them in such a manner that one cannot discern whether any particular document was previously turned over to the U.S. Attorney in response to the subpoena.

The court denied the request, but provided the exception in order to “balance the needs of the U.S. Attorney to maintain the privacy of its investigation process, while allowing Sovereign to obtain copies of documents as to which the work product privilege has been waived by the voluntary sharing of these documents with the government.” (November 20, 2020 Order.) The fact that the court denied that specific request does not mean the documents requested itself are not discoverable.

RFP Nos. 213-217, 220-228, and 230-234 relate to documents contained in Health Net’s SIU file but previously withheld from production based on attorney client privilege or attorney work product protection. Health Net argues these requests do not explicitly ask for the 11 Subpoenaed PI Reports and none of the RFPs propounded by Sovereign could reasonably be read to include any (let alone “all”) documents that Health Net produced to the government, except for RFP 212, which––by its clear terms––covers only the 11 Subpoenaed PI Reports.

The court agrees Sovereign is not entitled to any and all documents. Rather, they are entitled to all documents responsive to the requests. As stated in the November 20, 2020 Order, “any responsive documents to RFP Nos. 213-217, 220-228, and 230-234 that were previously provided to the U.S. Department of Justice must be produced no later than December 11, along with any recordings of any interview conducted by Health Net's investigators where Health Net has already produced the transcript, and any additional transcripts and recordings of interviews where Health Net has already produced at least one witness interview transcript.”

If any of the documents that Soverein describes as the 11 subpoenaed PI reports constitute or contain any of the documents expressly sought in 213-217, 220-228 and 230-234, they must be produced. If they do not, Soverein can repround a request for all “PI reports.” As long as they do not make reference to the government’s investigation, those requests are proper and most be responded to. If Health Net has other PI reports which it did not turn over to the government, those can be withheld if separately privileged, but must be listed on a separate and new privilege log along the following lines: “investigation report prepared by X, dated Y,” and setting forth the basis for the privilege claimed. One way or another, Sovereign is entitled to the subject reports that were provided to the federal government.

If Sovereign believes Health Net did not comply with the November 20, 2020 Order either by an inadequate privilege log or supplemental responses, Sovereign must file a separate motion seeking the appropriate relief.

Case Number: LC104357    Hearing Date: November 24, 2020    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

sovereign’s motion for summary adjudication of the second and third causes of action for violations of rico in the first amended cross-complaint

Date of Hearing: November 24, 2020 Trial Date: July 1, 2021

Department: W Case No.: LC104357

Moving Party: Plaintiffs and Cross-Defendants Dual Diagnosis Treatment

Center, Inc., et al.

Responding Party: Defendants Health Net, Inc., Health Net of California, Inc., Managed Health Network, Inc. and Health Net Life Insurance Company

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (collectively “Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (collectively “Health Net”). Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

Health Net successfully sought leave to file a First Amended Cross Complaint (FAXC). The new pleading added new defendants, Mohases, Mazim Management Group, Inc, DRMW, In and People for People, LLC (collectively “Mohases Entities”). The Mohases entities are alleged to be body brokers. Health Net also added additional allegations regarding wrongful conduct of cross defendants.

Sovereign now moves for summary adjudication on Defendant Health Net’s second and third cross-claims for violation of 18 U.S.C. §1962(c) (RICO).

[Tentative] Ruling

Plaintiffs/Cross-Defendants Dual Diagnosis Treatment Center’s Motion for Summary Adjudication is DENIED.

EVIDENTIARY OBJECTIONS

Health Net submits evidentiary objections to the Declaration of Lisa S. Kantor and Kevin Gallagher as well as two separate Declarations of Melody Yen, which were filed in connection with different summary adjudication motions.

Kantor Decl. – Objections to Nos. 1, 2, 4, and 6 are sustained.

Gallagher Decl. ­­– Objections to Nos. 1 – 5 are overruled.

Yen Decl. – Objections to Nos. 1 – 3 are sustained.

Health Net also objects to the Sovereign’s reply brief on the grounds the reply raises new arguments not raised in the moving papers. “Points raised for the first time in a reply brief will ordinarily not be considered, because such consideration would deprive the respondent of an opportunity to counter the argument.” (American Drug Stores, Inc. v. Stroh (1992) 10 Cal.App.4th 1446, 1453, 13 Cal.Rptr.2d 432.)

Because Sovereign has not shown good cause to depart from our usual rule, we decline to consider their late allegations that they (1) do not involve an enterprise; (2) do not describe racketeering activity; (3) do not involve a RICO injury; and (4) cannot support Health Net’s RICO claims. (Browne v. County of Tehama (2013) 213 Cal.App.4th 704, 720, fn. 10.)

REQUEST FOR JUDICIAL NOTICE

Sovereign requests this court take judicial notice of an excerpt from Health Net Life Insurance Company’s California Department of Insurance Supplemental Prior Approval Rate Filing for 2017, filed on June 21, 2016 (Exh. A.)

The court grants Sovereign’s request for judicial notice. (Evid. Code §§ 452(c) and (h); StorMedia Inc. v. Superior Ct. (1999) 20 Cal. 4th 449, 456-57.)

DISCUSSION

Sovereign seeks summary adjudication on the second and third causes of action of the First Amended Cross-Complaint on the grounds Health Net’s RICO claims are barred by the McCarran-Ferguson Act and because Health Net cannot satisfy the ‘pattern’ requirement of RICO.

A motion for summary adjudication may be made by itself or as an alternative to a motion for summary judgment and shall proceed in all procedural respects as a motion for summary judgment. (CCP §437c(f)(2).) “A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if that party contends that the cause of action has no merit or that there is no affirmative defense thereto, or that there is no merit to an affirmative defense as to any cause of action, or both, or that there is no merit to a claim for [punitive] damages … or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs.  (Id., subd. (f)(1).)  However, “[a] motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Id.) 

The moving party bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact, and if he does so, the burden shifts to the opposing party to make a prima facie showing of the existence of a triable issue of material fact.  (Id., subd. (p)(2); see, e.g., Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850-51.) Once that burden is met, the opposing party must demonstrate a triable issue regarding a fact material to the cause of action, defense, etc. (Id. at p. 850.) The opposing party cannot rely upon mere allegations or denials of its pleadings; the burden requires production of substantial responsive evidence of specific facts constituting a triable issue. (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 166.) 

Sovereign first moves for summary adjudication on the grounds Health Net’s RICO claims are barred by the McCarran-Ferguson Act. The McCarran-Ferguson Act provides:

(a) State regulation

The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) Federal regulation

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance[.]

15 U.S.C. § 1012.

“The McCarran–Ferguson Act precludes the application of a federal statute if: (1) the statute does not “specifically relate” to the business of insurance, (2) the acts challenged under the statute constitute the business of insurance, (3) the state has enacted a law or laws regulating the challenged acts, and (4) the state law would be superseded, impaired or invalidated by the application of the federal statute. Id. All four factors must be satisfied.” (Merchants Home Delivery Service, Inc. v. Frank B. Hall & Co., Inc. (9th Cir. 1995) 50 F.3d 1486, 1489.)

To meet their burden, Sovereign first contends RICO does not specifically relate to the business of insurance. (Merchants Home Delivery Service, Inc., supra, 50 F.3d 1486 at p. 1489.) Moreover, the statutes on which Health Net’s RICO causes of action are premised - 18 U.S.C. § 1341 (mail fraud) and 1343 (wire fraud) - do not specifically relate to the business of insurance. Next, Sovereign argues Health Net specifically alleges that Sovereign’s conduct interfered with Health Net’s “risk pool” and cost-control mechanisms and frustrated the purpose of the policies. (UMF 3.) As a result, Health Net’s alleged acts constitute the business of insurance. Sovereign next argues there can be no dispute that California has enacted laws regulating Sovereign’s challenged acts. “California has enacted comprehensive legislation expressly designed to regulate the business of insurance.” (American Internat. Group, Inc. v. Superior Court (1991) 234 Cal.App.3d 749, 764, reh'g denied and opinion modified (Oct. 25, 1991).) This includes at least Insurance Code §750. Lastly, Sovereign contends applying RICO here would impair California’s statutory scheme because California does not allow private causes of action for unfair insurance practices. As a result, allowing Health Net to pursue RICO causes of action would be an end run around these statutory limitations.

Health Net does not refute that California law regulates the business of insurance and RICO does not relate to it. However, the parties dispute whether RICO impairs California Insurance Code. Health Net argues Sovereign’s argument that RICO impairs the California Insurance Code flies in the face of decades of law holding—exactly to the contrary—that RICO “advance[s] California’s interest in combating insurance fraud[.]” In re Nat’l W. Life Ins. Deferred Annuities Litig., 467 F. Supp. 2d 1071, 1079 (S.D. Cal. 2006).

Both cite to Humana Inc. v. Forsyth (1999) 525 U.S. 299, to support their contentions. In Humana, plaintiffs claimed that they overpaid millions of dollars when Humana Insurance paid significantly less than the agreed upon 80% of the hospital’s actual charges for the care that policy beneficiaries received and the beneficiaries paid significantly more than 20% of those charges. (Humana Inc. v. Forsyth (1999) 525 U.S. 299, 303–304.) The Court dismissed any suggestions that RICO would “invalidate” or “supersede” Nevada’s insurance law, and turned its primary focus to whether RICO’s application would “impair” Nevada’s law. (Id. at p. 307.) The Court rejected the notion that impair is synonymous with invalidate and supersede and held to “‘impair’ a law is to hinder its operation or ‘frustrate [a] goal’ of that law.” (Id. at p. 311.) The Court concluded that suit under RICO by the policy beneficiaries would not “impair” Nevada state law because “RICO's private right of action and treble damages provision appears to complement Nevada's statutory and common-law claims for relief.” (Id. at p. 313.) The Court also noted RICO and Nevada’s laws governing insurance do not directly conflict; rather, the acts the policy beneficiaries identify as unlawful under RICO are also unlawful under Nevada law. (Id. at p. 308.)

Sovereign contends because California does not allow private causes of action for unfair insurance practices, applying RICO would frustrate California’s statutory scheme. However, the fact that California does not allow private causes of action for unfair insurance practices does not mean RICO hinders the operation or frustrates the goal of California’s state insurance regulation. “[T]he absence of a private right of action under state insurance law is not dispositive as to whether there is reverse-preemption under the McCarran–Ferguson Act.” (Negrete v. Allianz Life Ins. Co. of North America (C.D. Cal. 2013) 927 F.Supp.2d 870, 876.) Although other circuits have found lack of a private right of action to be dispositive, Negrete found their view better aligned with Humana because federal law may provide for a claim “in aid or enhancement of state regulation” even in those situations where a state does not provide for a private right of action.

Next, as noted by Sovereign, “[a] broadly-drafted federal statute, such as RICO, may impair state insurance laws in some circumstances but not in others, depending on the ‘theory of liability asserted and the relief sought by [the] plaintiffs.’” (Negrete, supra, 927 F.Supp.2d 870 at p. 878.) Based on the theories of liability asserted in the instant matter, the court finds RICO would not impair California’s statutory law regulating the business of insurance.

Sovereign cites American Internat. Group, Inc. v. Superior Court (1991) 234 Cal.App.3d 749 (“AIG”) to support their contention that RICO would go against the theories of liability in the instant matter. American Internat. Group, Inc. held “[a]llowance of a RICO action seeking civil damages (including treble damages and attorneys fees) for the very conduct which California has chosen to regulate administratively would subvert and subsume the existing statutory scheme.” (American Internat. Group, Inc., supra, 234 Cal.App.3d at p. 767.) Because under RICO, treble damages and attorney fees are mandatory (18 U.S.C. § 1964) but Health Net’s fraud claim does not permit attorneys’ fees (Code Civ. Proc., § 1021) and permits, but does not require, punitive damages upon clear and convincing evidence (Code Civ. Proc., § 3294; 18 U.S.C. § 1964(c)), the RICO claims are barred.

However, “whether McCarran–Ferguson precludes a RICO claim is a question of federal law,” In re Nat'l Western Life Ins. Deferred Annuities Litig., 467 F.Supp.2d 1071, 1079 (S.D.Cal.2006), even when resolution of this question depends on an interpretation of state laws regulating the insurance industry. See also Weiss v. First Unum Life Ins. Co., 482 F.3d 254, 263 n. 6 (3d Cir.2007).” (Negrete v. Allianz Life Ins. Co. of North America (C.D. Cal. 2013) 927 F.Supp.2d 870, 875.) As a result, the court finds the reasoning in AIG unpersuasive.

Instead, the court follows In re National Western Life Ins. and Merchants Home Delivery Service, Inc. v. Frank B. Hall & Co., Inc. (9th Cir. 1995) 50 F.3d 1486, 1491. The court in In re Nat’l Western held, “although California may limit certain statutory remedies for certain claims under its insurance code, California still provides for a robust policy in favor of vindicating the rights of private plaintiffs damaged by an insurer's unlawful conduct. Against this backdrop, the court holds that allowing a RICO claim here would not impair, impede, or supersede California law for purpose of McCarran–Ferguson.” (In re Nat’l W. Life Ins. Deferred Annuities Litig. (S.D. Cal. 2006) 467 F.Supp.2d 1071, 1079.)

Moreover, the court in Merchants rejected the argument that the private right of action for treble damages and mandatory attorney fees allowed by RICO would upset the balance struck by California's insurance code because the “argument amount[ed] to the contention that Congress intended the McCarran–Ferguson Act to allow states to preempt the field in the regulation of the business of insurance.” (Merchants Home Delivery Service, Inc. v. Frank B. Hall & Co., Inc. (9th Cir. 1995) 50 F.3d 1486, 1491.) The Court in Humana even noted the availability of punitive damages meant that plaintiffs may be eligible for damages exceeding the treble damages available under RICO. (Humana, supra, 525 U.S. at p. 313.) As a result, it appears RICO would not frustrate California’s policy prohibiting private actions for unfair insurance practices.

Based on the foregoing, Sovereign has not met its burden in demonstrating Health Net’s RICO causes of action are barred because treble damages and attorney fees are mandatory under RICO.

The court now turns to the issue of whether Health Net’s claim fails because it cannot establish a “pattern”. To prevail on a civil RICO claim under 18 U.S.C. § 1962(c), a plaintiff must prove the defendant engaged in (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity that (5) caused injury to the plaintiff. (Chaset v. Fleer/Skybox Intern., LP (9th Cir. 2002) 300 F.3d 1083, 1086.) 18 U.S.C. § 1961(5) defines a “pattern of racketeering activity” as “at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years...after the commission of a prior act of racketeering activity.” (18 U.S.C. §1961(5).) Proof of a “pattern of racketeering activity” under RICO requires showing that predicate criminal acts were “related” and “continuous.” (H.J. Inc. v. Northwestern Bell Telephone Co. (1989) 492 U.S. 229, 239.) “Continuity” may be either close-ended or open-ended. Thus, a pattern can be established either by a closed period of repeated conduct, or by past conduct that by its nature projects into the future with a threat of repetition. (Id. at p. 241.)

Sovereign argues only closed-ended continuity is possible here and courts have routinely held that continuous activity that does not last one year does not satisfy RICO and as a result, the alleged activity underlying Health Net’s RICO claims falls short of what is required to establish continuity. (See, e.g., Ward v. Kroger Co. (9th Cir. 2010) 372 Fed.Appx. 738, 739 [activity “lasted only a few months” which “is not sufficiently continuous”]; Turner v. Cook (9th Cir. 2004) 362 F.3d 1219, 1231 [“almost all of the alleged fraudulent communications occurred during the two month period between June and July of 2001, and the additional three categories of communication occurred only sporadically in the preceding year,” thus “appellants have not demonstrated continuity”]; Barsky v. Spiegel Accountancy Corporation (N.D. Cal., Feb. 11, 2015, No. 14-CV-04957-TEH) 2015 WL 580574, at *6 [“courts routinely find that alleged racketeering activity lasting less than a year does not constitute a closed-ended pattern”]; Mexicanos v. Hewlett-Packard Company (N.D. Cal., July 13, 2015, No. 14-CV-05292-BLF) 2015 WL 9592606, at *11.)

Sovereign contends it paid Nationwide for patient leads only for six months (UMF 8) and premium support provided by Sovereign spanned only a few months (UMF 9). Sovereign also claims there is no evidence that Sovereign ever submitted an enrollment application to Health Net (UMF 10).

In opposition, Health Net argues courts have explained that the continuity requirement is “flexible,” and eschewed a bright-line one-year rule. (Allwaste, Inc. v. Hecht (9th Cir. 1995) 65 F.3d 1523, 1528.) Allwaste, Inc. held, “We did not go so far as to establish such a rigid [one-year] requirement because it would contradict the fluid concept of continuity enunciated by the Supreme Court”. Health Net further argues even if there were such a minimum, a one-year durational requirement is not an impediment to Health Net’s RICO claims, because Sovereign’s fraudulent conduct extended over a far longer time period.

Health Net contends over a period of approximately four years, from 2014 until 2018, Sovereign purchased Health Net patients and patients’ insurance (AMF 2-17, 38-43), waived patient financial responsibility obligations (AMF 52-53), engaged in a variety of fraudulent billing practices, including billing for services that were not provided or were not medically necessary, created false medical records to support fraudulent billing, and submitted claims to Health Net, on which it is seeking to collect payment to this very day (AMF 1, 44-56). Moreover, Sovereign’s scheme was not limited to Health Net, but extended to other insurance companies, including Cigna, Anthem, and Blue Shield. (AMF 16, 38-39, 48.)

Sovereign does not dispute these additional facts. However, Sovereign maintains they are immaterial to the instant matter as these additional facts fail RICO’s other elements and only conduct that violates RICO can establish a “pattern” under RICO. As discussed above, the court disregards the other elements as they were not presented in the moving papers. However, the court finds Health Net’s additional facts are material and demonstrate a “pattern”. “‘[C]riminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.’ § 3575(e)§ 3575(e).” (H.J. Inc. v. Northwestern Bell Telephone Co. (1989) 492 U.S. 229, 240.) As a result, the alleged criminal conduct spanned approximately four years, from 2014 to 2018 and was directed at more than one entity.

The court also finds Health Net has created a triable issue of material fact as to open-ended continuity. Sovereign argues only closed-ended continuity is possible here, as Health Net’s scorched-earth approach to avoiding claims put Sovereign out of business, precluding a “showing [of] clear signs of threatening to continue into the future.” (Roger Whitmore's Auto. Services, Inc. v. Lake County, Illinois (7th Cir. 2005) 424 F.3d 659, 673.) However, “[t]he lack of a threat of continuity of racketeering activity cannot be asserted merely by showing a fortuitous interruption of that activity such as by an arrest, indictment or guilty verdict. Rather, in the context of an open ended period of racketeering activity, the threat of continuity must be viewed at the time the racketeering activity occurred.” (U.S. v. Busacca (6th Cir. 1991) 936 F.2d 232, 238.)

Here, Sovereign has not established the threat of continuity absolutely stopped just because Sovereign went out of business. (See Ikuno v. Yip (9th Cir. 1990) 912 F.2d 306, 309 holding continuity established by filing of two false reports where there was no evidence defendant “would have stopped . . . if [company] had not ceased to do business”; Allwaste, supra, 65 F.3d at 1529 holding the former officers could be said to have made extortion a routine manner of doing business, which would “satisfy the open-ended continuity requirement and had defendants “not been fortuitously interrupted by termination [of their employment], the predicate acts could have recurred indefinitely.”) In Reply, Sovereign argues Health Net’s evidence of ‘widespread billing fraud’ is weak. However, the court may not weigh evidence. (CCP § 437c(e); Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 840 (“The trial court may not weigh the evidence in the manner of a factfinder to determine whose version is more likely true. Nor may the trial court grant summary judgment based on the court's evaluation of credibility.”) (internal citation omitted).) Health Net has presented a triable issue of material fact including purchase of patients and payment of premiums and Sovereign fails to present evidence that Sovereign would have stopped such conduct had the company not ceased to do business.

Based on the foregoing, Sovereign’s Motion for Summary Adjudication is denied.

Case Number: LC104357    Hearing Date: November 13, 2020    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

Plaintiffs’ MOtion to compel further

Date of Hearing: November 13, 2020 Trial Date: June 1, 2021

Department: W Case No.: LC104357

Moving Party: Plaintiffs/Cross-Defendants Dual Diagnosis Treatment Center

Responding Party: Defendants/Cross-Complainants

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (“Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (“Health Net”) Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

[Tentative] Ruling

Sovereign’s Motion to Compel Production of Documents in Response to Sovereign’s Sixth Set of Requests for Production (Request Nos. 212-217, 220-234) is GRANTED, in part.

EVIDENTIARY OBJECTIONS

Plaintiffs submit the following evidentiary objections to the Declaration of Sherman Card in Support of Health Net’s Opposition to Sovereign’s Motion to Compel Production of Documents in Response to Sovereign’s Sixth Set of Requests for Production:

Objections 1, 2, and 3 are overruled.

DISCUSSION

Sovereign moves to compel RFP No. 212 (documents Health Net produced to the government in response to a December 16, 2019, grand jury subpoena (the “D-GJS”); RFPs Nos. 213-217, 220-228, and 230-234 (Health Net’s “SIU file”); and RFP No. 229 (Health Net’s contracts with Optum).

RFP No. 212

Sovereign contends good cause exists for the production of the 11 witness interviews on the grounds the documents Health Net provided in response to the Subpoena are investigation materials that pre-existed Health Net’s voluntary compliance with the Subpoena and any claims of attorney-client privilege and/or attorney work product were waived when Health Net voluntarily complied with this Subpoena. Sovereign also contends Health Net’s objections are boilerplate and to the extent that the documents are privileged, Health Net has failed to provide a privilege log.

In opposition, Health Net argues Health Net did not waive the attorney work-product privilege when it produced the 11 Subpoenaed PI Reports to the grand jury, as commanded by the D-GJS because Health Net and the government have an alignment of interest with regard to investigating and, if merited, holding Sovereign accountable for its fraudulent conduct towards Health Net. (McKesson HBOC, Inc. v. Super. Ct. (2004) 115 Cal. App. 4th 1229.)

First, the court finds Sovereign has demonstrated good cause for the documents as they contain information about eleven key witnesses in this case, gleaned from interviews conducted by Health Net’s investigators and/or attorneys. The question is not whether the documents are relevant but whether Health Net waived the attorney client/work product privilege which would ordinarily protect such material from discovery. The court must also consider the United State’s argument that production of the documents would violate grand jury secrecy.

In McKesson, the court held the purpose of Evidence Code section 912 was to permit “sharing of privileged information when it furthers the attorney-client relationship; not simply when two or more parties might have overlapping interests.” (McKesson HBOC, Inc. v. Superior Court (2004) 115 Cal.App.4th 1229, 1237.) As noted by Sovereign, the court in McKesson went on to discuss the decision in Raytheon Co. v. Superior Court (1989) 208 Cal.App.3d 683, where the issue of waiver was discussed. In this context, the McKesson court reached the following conclusion:

The Raytheon decision . . . suggests that the targets of a government investigation may share information with each other without waiving the attorney-client privilege if cooperation is reasonably necessary for counsel to provide representation in the investigation. In other words parties aligned on the same side in an investigation or litigation may, in some circumstances, share privileged documents without waiving attorney-client privilege. (McKesson HBOC, Inc., supra, 115 Cal.App.4th at p. 1237-38.)

This is not the same here. Health Net has not demonstrated cooperation with the government’s subpoena was necessary for Health Net to provide representation in the investigation. Moreover, Health Net has not demonstrated the government had an interest in maintaining the confidentiality of the witness interviews.

The instant matter is also distinguishable from Armenta v. Superior Court (2002) 101 Cal.App.4th 525. In Armenta, the qui tam plaintiff and government both brought action under the False Claims Act against manufacturers of water distribution parts used in municipal water systems. During litigation, both the qui tam plaintiff and government hired the same expert on lead leaching from bronze water distribution parts and entered into a ‘joint prosecution agreement’ in which the qui tam plaintiff and government agreed to a mutuality of interest in a common and that their communications with each other were protected from disclosure to any third party by their clients' respective attorney-client privilege and our own work-product privilege. The court in Armenta found “[p]arties with common interests may share confidential information without waiving applicable protections. [Citations.] Inasmuch as the superior court impliedly accepted evidence that the reports were the result of Armenta's and LADWP's joint collaboration, LADWP's counsel had no authority to waive the work product privilege on Armenta's behalf. [Citations.]” (Armenta, supra, 101 Cal.App.4th at p. 534.)

Health Net does not mention any specific agreement with the government to maintain the confidentiality of the reports. Moreover, “’[f]or the common interest doctrine to attach, most courts seem to insist that the two parties have in common an interest in securing legal advice related to the same matter—and that the communications be made to advance their shared interest in securing legal advice on that common matter.’ [Citations.]” [Citations.]” (Seahaus La Jolla Owners Assn. v. Superior Court (2014) 224 Cal.App.4th 754, 770.) As such, having overlapping interests is not enough.

Finally, Rule 6(e) “is intended only to protect against disclosure of what is said or takes place in the grand jury room …” (U.S. v. Dynavac, Inc. (9th Cir. 1993) 6 F.3d 1407, 1411–12.) As noted by Sovereign, they are not seeking information from the grand jury, but rather Health Net’s SIU file. The note to Subdivision (e)(6) provides that “records, orders and subpoenas relating to grand jury proceedings shall be kept under seal to the extent and for so long as is necessary to prevent disclosure of matters occurring before a grand jury. By permitting such documents as grand jury subpoenas and immunity orders to be kept under seal, this provision addresses a serious problem of grand jury secrecy and expressly authorizes a procedure now in use in many but not all districts.” (emphasis added.)

Based on the foregoing, Sovereign’s request as to RFP No. 212 is GRANTED. The court finds that production to the government under the circumstancse here constituted a waiver of the attorney work product privilege as to this set of investigative materials.

RFP Nos. 213-217, 220-228, and 230-234

Sovereign contends good cause exists for the production of Nos. 213-217, 220-228, 230-234, which seek all of Health Net’s investigative materials relating to Sovereign between mid-June 2015 to the present because Health Net has a continuing duty to thoroughly and reasonably investigate these (and all) claims.

In opposition, Health Net argues they finalized Sovereign’s unpaid claims by applying determinative denial and/or disallowance codes communicated to insureds, members, and/or Sovereign through explanations of benefits, remittance advices, and/or denial letters and moreover, these are two separate investigations. Health Net also argues even if Health Net had “indefinitely ‘pended’ [such claims] for nearly five years” (which it did not), this would not result in Health Net being precluded from enjoying both an attorney-client privilege and work-product privilege. Health Net takes the position that the investigations at issue here were conducted at the bequest of and with the close involvement of counsel, rendering the investigation materials protected under the attorney client and work product privileges.

First, the court finds Sovereign has demonstrated the relevance of the documents sought. The documents regarding Health Net’s investigation, whether or not “pending” or “finalized.” would help the trier of fact to evaluate the thoroughness and fairness of Health Net’s investigation of substance abuse treatment providers and could lead to the discovery of witnesses and relevant and admissible exculpatory evidence.

Health Net contends it has already produced to Sovereign all non-privileged responsive documents from the SIU Investigation, including all witness interview reports and transcripts generated by internal SIU investigators and Sovereign has not established Health Net waived the attorney-client or work-product privileges as to the unproduced Privileged SIU materials. The court notes “’[t]he party claiming the privilege has the burden of establishing the preliminary facts necessary to supports its exercise, i.e., a communication made in the course of an attorney-client relationship. [Citations.] Once that party establishes facts necessary to support a prima facie claim of privilege, the communication is presumed to have been made in confidence and the opponent of the claim of privilege has the burden of proof to establish the communication was not confidential or that the privilege does not for other reasons apply.’” (Citizens for Ceres v. Sup. Ct. (2013) 217 Cal.App.4th 889, 911 (citations omitted.).) The court finds that Health Net has met its burden of establishing the privileged nature of these withheld documents. The court finds no evidence of general waiver of the attorney client or work product privilege.

Sovereign contends the SIU file contains unprivileged knowledge of the investigation of Sovereign, which the SIU is required to collect, maintain and report. Further, that knowledge does not become privileged simply because it was shared with Health Net’s counsel. (See Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725, 735 (“While the privilege fully covers communications as such, it does not extend to subject matter otherwise unprivileged merely because that subject matter has been communicated to the attorney.’”).) Sovereign relies on Wellpoint Health Networks, Inc. v. Superior Court 59 Cal. App. 4th 110 (1997), for the proposition that “where defense is based on good faith investigation, attorney client privilege is waived.” Motion at 13. The court agrees with Health Net, however, that Wellpoint makes applies “only if defendants’ answer or discovery responses indicate the possibility of a defense based on thorough investigation and appropriate corrective response, can a finding of waiver be made.” (Id. at 129.) Because Health Net makes no such claim, nor is asserting this defense, there is no waiver of the attorney work product/client privilege. (Coito v. Super. Ct. (Cal.), 54 Cal. 4th 480, 502 (2012) (applying work-product protection where “answering the interrogatory would reveal the attorney’s tactics, impressions, or evaluation of the case, or would result in opposing

counsel taking undue advantage of the attorney’s industry or effort.”).

Based on the foregoing, Sovereign’s request as to RFP No. 213-217, 220-228, 230-234 is Denied. If it has not already done so, Health Net must provide a full and complete privilege log of all documents withheld.

RFP No. 229

Sovereign contends good cause exists for the production of the contracts with Optum because Health Net contracted with Optum to perform certain SIU functions. Moreover, the contract between Health Net and Optum is not confidential and should be provided to Sovereign.

In Footnote 4 of Health Net’s opposition, Health Net states they have agreed to produce redacted versions of its relevant contracts with Optum. Sovereign does not contest Sovereign’s assertion and as such, the court finds Sovereign’s motion to compel RFP No. 229 MOOT.

Case Number: LC104357    Hearing Date: October 14, 2020    Dept: W

DUAL DIAGNOSIS TREATMENT CENTER, INC., et al. v. HEALTH NET, INC., et al.

MOTION TO SEAL DOCUMENTS

Date of Hearing: October 14, 2020 Trial Date: June 1, 2021

Department: W Case No.: LC104357

Moving Party: Plaintiffs and Cross-Defendants Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; Tonmoy Sharma; Medical Concierge, Inc.; and Vedanta Laboratories, Inc.

Responding Party: Defendant/Cross-Complainant Health Net Life Insurance Company

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (“Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (“Health Net”). Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract, (2) breach of contract, (3) promissory estoppel, (4) violation of Cal. Bus. & Prof. Code § 17200, et seq., (5) bad faith, and (6) bad faith.

On January 22, 2019, Cross-Complainant Health Net Life Insurance Company filed the operative First Amended Cross-Complaint against Plaintiffs/Cross-Defendants and Cross-Defendants Tonmoy Sharma (“Sharma”), Medical Concierge, Inc., Mahyar Mohases, Maxim Management Group, Inc., CRMW, Inc., and People For People, LLC, asserting causes of action for (1) common law fraud, (2) violation of RICO, 18 U.S.C. § 1962(c), (3) violation of RICO, 18 U.S.C. § 1962(c), (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq., (5) intentional interference with contractual relations, and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that Cross-Defendants purchased substance abuse treatment patients from “body brokers.”

Plaintiffs and Cross-Defendants Sharma and Medical Concierge, Inc. (collectively “Sovereign”) move to seal Exhibit D to the Declaration of Lisa S. Kantor in Support of Sovereign’s Motion for Summary Adjudication of the Second and Third Causes of Action for Violations of RICO in the First Amended Cross-Complaint.

[Tentative] Ruling

Plaintiffs and Cross-Defendants Sovereign’s Motion to Seal Documents Supporting Sovereign’s Motion for Summary Adjudication of the Second and Third Causes of Action for Violations of RICO in the First Amended Cross-Complaint is GRANTED.

Discussion

Plaintiffs/Cross-Defendants Sovereign moves for an order pursuant to California Rules of Court Rules 2.550 and 2.551 and the parties’ Stipulated Protective Order to seal the document filed as Exhibit D to the Declaration of Lisa S. Kantor in Support of Sovereign’s Motion for Summary Adjudication of the Second and Third Causes of Action for Violations of RICO in the First Amended Cross-Complaint (“Sovereign’s MSA re: RICO”). Health Net does not oppose this motion.

California law authorizes the sealing of court records containing confidential information. (NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1222, n. 46.) California Rules of Court Rule 2.551(a) provides that a record may not be filed under seal without a court order and the court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties. (CRC Rule 2.551(a).) The party requesting a record be filed under seal must file a motion or an application for an order sealing the record that is accompanied by a memorandum or declaration containing facts to justify the sealing. (CRC Rule 2.551(b)(1).) “The court may order that a record be filed under seal” if it finds that there is an overriding interest in favor of maintaining the confidentiality of the information. (CRC Rule 2.550(d).)

The factual findings requires to seal records require the court to expressly find that (1) there exists an overriding interest that overcomes the right of public access to the record; (2) the overriding interest supports sealing the record; (3) a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (CRC Rule 2.550(d)(1)-(5).)

Here, Sovereign seeks to seal its supplemental responses to Health Net’s first set of Requests for Admissions as the responses contain the names, dates of birth, and health-related information of Health Net-insured patients that Sovereign rendered treatment to and which constitute protected health information. A person has a constitutional right of privacy to his or her medical records. (John B. v. Superior Court (2006) 38 Cal.4th 1177, 1198.) “A person’s medical profile is an area of privacy infinitely more intimate, more personal in quality and nature than many areas already judicially recognized and protected.” (Hill v. Nat’l Collegiate Athletics Ass’n (1994) 7 Cal.4th 1, 41 [quoting Bd. of Med. Quality Assurance v. Gherardini (1979) 93 Cal.App.3d 669, 679]; see also Civ. Code § 56.10; 42 USC § 1320 et seq. (HIPAA) [health care providers generally may not disclose medical information without patient’s authorization or court order].) As Exhibit D to the Declaration of Lisa S. Kantor in support of Sovereign’s MSA re: RICO contains private health information of Sovereign’s patients, the court finds good cause for sealing Exhibit D.

The court further finds there is an overriding interest in protecting the confidential protected health information of patients that were treated at Sovereign and insured by Health Net during the relevant time period and whose claims are the subject of this action that overcomes the right of public access and supports the sealing of Exhibit D. Not sealing these records would have a substantial probability of prejudicing the patients’ interest and violating their right to privacy. Furthermore, the sealing of Exhibit D as opposed to all evidence in support of Sovereign’s MSA re: RICO is narrowly tailored and the least restrictive means of ensuring the patients’ right to privacy over their protected health information is not violated.

Based on the foregoing, Sovereign’s motion to seal is GRANTED.

Case Number: LC104357    Hearing Date: September 10, 2020    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

Plaintiff’S MOTION TO SEAL DOCUMENTS

Date of Hearing: September 10, 2020 Trial Date: June 1, 2021

Department: W Case No.: LC104357

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (“Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (“Health Net”) Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

Sovereign moves to seal several exhibits in the Declaration of Melody Yen and Paragraph 5 of the Declaration of Mandeep Kumar submitted in support of Sovereign’s Opposition to Health Net’s Motion for Summary Adjudication of their Affirmative Defense of Failure to State a Claim with Respect to Plaintiffs’ Breach of Contract and Bad Faith Causes of Action.

[Tentative] Ruling

Plaintiff/Cross-Defendant’s Motion to Seal is GRANTED.

DISCUSSION

Sovereign moves this court for an order pursuant to Rules of Court 2.550 and 2.551 and the parties’ Stipulated Protective Order to seal certain documents filed as Exhibits D, E, and F to the Declaration of Melody Yen and Paragraph 5 of the Declaration of Mandeep Kumar in support of Sovereign’s Opposition to Health Net’s Motion for Summary Adjudication of their Affirmative Defense of Failure to State a Claim with Respect to Plaintiffs’ Breach of Contract and Bad Faith Causes of Action (“MSA”). Health Net does not oppose Plaintiffs’ Motion to Seal documents filed as Exhibits D, E, and F as well as Paragraph 5.

California law authorizes the sealing of court records containing confidential information. (See NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1222, n. 46.) California Rules of Court Rule 2.551(a) provides that a record may not be filed under seal without a court order and the court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties. The party requesting a record be filed under seal must file a motion or an application for an order sealing the record that is accompanied by a memorandum or declaration containing facts to justify the sealing. (CRC Rule 2.551(b)(1).) “The court may order that a record be filed under seal” if it finds that there is an overriding interest in favor of maintaining the confidentiality of the information. (CRC Rule 2.550(d).)

The factual findings required to seal records require the court to expressly find that (1) there exists an overriding interest that overcomes the right of public access to the record; (2) the overriding interest supports sealing the record; (3) a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (CRC Rule 2.550(d)(1)-(5).)

The court finds good cause for sealing Exhibits D-F and Paragraph 5 Filed in Support of Opposition to Health Net’s MSA. Here, Sovereign seeks to seal claims-related documents, including documents reflecting communications between Sovereign and Health Net representatives regarding the verification of Health Net insurance benefits and containing patient protected health information (Exh. D); claim forms for services rendered by Sovereign to Health Net- insured patients, containing patient protected health information (Exh. E); and claim-related documents, including Health Net correspondence to Sovereign, remittance advices and explanations of benefits, containing patient protected health information (Exh. F). Moreover, Plainttiff seeks to seal a portion the Kumar Declaration contains the names of Health Net-insured patients that Sovereign rendered treatment to and which constitute protected health information (Kumar Decl., ¶5). These documents and Paragraph 5 consist of the protected health information of Health Net insureds whose claims are the subject of this action and who were treated by Sovereign.

A person has a constitutional right of privacy to his or her medical records. (John B. v. Superior Court (2006) 38 Cal.4th 1177, 1198.) “A person’s medical profile is an area of privacy infinitely more intimate, more personal in quality and nature than many areas already judicially recognized and protected.” (Hill v. Nat’l Collegiate Athletics Ass’n (1994) 7 Cal.4th 1, 41 [quoting Bd. of Med. Quality Assurance v. Gherardini (1979) 93 Cal.App.3d 669, 679]; see also Civ. Code § 56.10; 42 USC § 1320d et seq. (HIPPA) [health care providers generally may not disclose medical information without patient's authorization or court order].)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits D, E, F and Paragraph 5. Sealing the records supports the overriding interest in protecting the confidential protected health information (“PHI”) of patients that treated at Sovereign, including patients who were insured by Health Net during the relevant time period and whose claims are the subject of this action, and not sealing these records would have a substantial probability of prejudicing the patients’ interest. Additionally, sealing these records as opposed to all the evidence in support of the summary adjudication motion is narrowly tailored and the least restrictive means of avoiding violating the patients’ right to privacy over their protected health information. Plaintiff seeks only to seal three exhibits and a portion of one declaration.

Based on the foregoing, Sovereign’s Motion to Seal Documents Filed in Support of Sovereign’s Opposition to Health Net’s Motion for Summary Adjudication of their Affirmative Defense of Failure to State a Claim with Respect to Plaintiffs’ Breach of Contract and Bad Faith Causes of Action ts They Pertain to Oregon And Arizona Health Insurance Policies is GRANTED.

Case Number: LC104357    Hearing Date: August 20, 2020    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

health net’s MOTION for clarification regarding the court’s june 22, 2020 order

Date of Hearing: August 20, 2020 Trial Date: January 25, 2021

Department: W Case No.: LC104357

Moving Party: Defendants Health Net

Responding Party: Plaintiffs Sovereign

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (“Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (“Health Net”) Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

Health Net seeks clarification of the court’s June 22, 2020 order on Sovereign’s Motions to Quash regarding Deposition Subpoenas for Production of Business Records to Timothy Weesner, Diana Miltenburg, and Hailey Hollers (“Order”).

DISCUSSION

Health Net states it seeks clarification of the court’s June 22, 2020 Order. Specifically, Health Net seeks clarification from the court regarding whether Health Net is required, under the Order, to give Sovereign “consumer notice” under Code of Civil Procedure section 1985.3(b) when issuing deposition subpoenas for production of documents to former Sovereign employees and other such affiliated third parties.

On June 22, 2020, this court ordered:

The court agrees that consumer notice to these former patients is not required in this case because these three individuals did not “maintain” patient records, by plaintiff’s own admission. In addition, the patients did not transact business ith [sic] or receive services from the witnesses, but rather from their employer, Sovereign. Further, as a practical matter, the court cannot conceive of how consumer notice would be given, in a case such as this, where a former employee may have taken key documents exposing a former employer’s misconduct, but which contain names of patients or customers unknown to the subpoenaing party.

Consumer notice, however, does need to be provided to plaintiffs, since Section 1985.3(a)(2) defines “Consumer” as: [A]ny individual, partnership of five or fewer persons, association, or trust which has transacted business with, or has used the services of, the witness or for whom the witness has acted as agent or fiduciary. (Emphasis added).” Here, the individual clinicians certainly served as plaintiffs’ agent, at least in the past.

Health Net argues the term “consumer” is defined for purposes of Section 1985.3 as “any individual, partnership of five or fewer persons, association, or trust which has transacted business with, or has used the services of, the witness or for whom the witness has acted as agent or fiduciary.” (CCP §1985.3(a)(2).) As such, Health Net argues, the plain text of Section 1985.3(a)(2) excludes a “corporation” as part of the definition of “consumer” and it is therefore unclear whether Health Net is to provide Consumer Notice to only the Sovereign entities, if any, that fall within one of the defined categories of “consumer” or whether the court is requiring Health Net to serve Consumer Notice on Sovereign, regardless of the fact that each of the Sovereign entities is a corporation, and corporations are excluded from the definition of “consumer.”

In opposition, Plaintiffs argue Health Net’s motion is, in substance, an untimely motion for reconsideration pursuant to Code of Civil Procedure section 1008. Plaintiffs contend Code of Civil Procedure section 1008 makes clear that if Health Net wanted the court to reconsider its decision on the issue of providing consumer notice to Sovereign a motion must be filed with the court within 10 days, which was July 2, 2020.

The court finds Health Net’s motion is premised on the contention that the court erroneously applied the law. As such, it would appear that Health Net is not seeking clarification of the June 22, 2020 Order; rather, it would appear that Health Net is asking this court to use its inherent power to correct its June 22, 2020 Order. In fact, for the first time in Reply, Health Net argues Code of Civil Procedure section 128(a)(8). Code of Civil Procedure section 128(a)(8) provides: “Every court shall have the power … to amend and control its process and orders so as to make them conform to law and justice.” (CCP §128(a)(8).)

While the court finds this is not a motion for reconsideration, the court finds Health Net improperly brought a Code of Civil Procedure section 128. No such motion was noticed and is therefore not before the court. Additionally, the court notes Plaintiffs also seek sanctions for violating Code of Civil Procedure section 1008. However, as discussed above, the court finds Health Net is not moving pursuant to Section 1008. As such, the court declines to issue sanctions.

However, absent Code of Civil Procedure section 1008, this court recognizes “a trial court’s inherent constitutional power sua sponte to reconsider, correct and change its own interim decisions.’ [Citation.]” (Le Francois v. Goel (2005) 35 Cal.4th 1094, 1107.) “Le Francois simply requires that the trial court reconsider a prior ruling based on its own realization that the ruling was erroneous, and not based upon a determination that the motion to reconsider should itself be granted on its merits.” (In re Marriage of Barthold (2008) 158 Cal.App.4th 1301, 1308.) As the California Supreme Court affirmed in Le Francois, “[w]hether the trial judge has an unprovoked flash of understanding in the middle of the night or is prompted to rethink an issue by the stimulus of a motion is ‘constitutionally immaterial’ to the limitation on the power of the Legislature to regulate the judiciary.’ [Citation.]” (Le Francois, supra, 35 Cal.4th p. 1101.)

As such, the court finds Sovereign is not within the meaning of ‘consumer’ and the court exercises its inherent power to correct its order. Sovereign does not provide any evidence that it or any of its entities are not corporations, which would be excluded from the definition of ‘consumer’. (See Moser v. Health Ins. Innovations, Inc., No. 17cv1127-WQH(KSC), 2019 WL 2996950, at *6 (S.D. Cal. July 8, 2019); Weil & Brown, Cal. Practice Guide: Civ. Proc. Before Trial (The Rutter Group June 2020 Update), Ch. 8E-6, ¶ 8:584.)

When reading Section 1985.3(a)(2) in whole, the Section provides any individual, partnership of five or fewer persons, association or trust for whom the witness has acted as agent or fiduciary (i.e., Hollers, Weesner, and Miltenburg acting as the agent or fiduciary of Sovereign.) As Sovereign is not an individual, partnership of five or fewer inidividuals, association or trust, Health Net is not required to provide consumer notice to Sovereign.

If any of the personal records of the Sovereign entities that are not corporations are sought, then Health Net is required to provide consumer notice to those entities. If not, then no consumer notice is required.

Obviously, Health Net must serve notice of subpoena on any third party on Health Net as a matter of course, although not under the timing and other requirements that relate to consumer notice. (C.C.P. Section 2025.220(b).)

Case Number: LC104357    Hearing Date: July 15, 2020    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

health net’s MOTIONS TO SEAL DOCUMENTS

Date of Hearing: July 15, 2020 Trial Date: January 25, 2021

Department: W Case No.: LC104357

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (“Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (“Health Net”) Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

Health Net successfully sought leave to file a First Amended Cross Complaint (FAXC). The new pleading added new defendants, Mohases, Mazim Management Group, Inc, DRMW, In and People for People, LLC (collectively “Mohases Entities”). The Mohases entities are alleged to be body brokers. Health Net also added additional allegations regarding wrongful conduct of cross defendants.

Health Net now moves for motion for summary adjudication of its cross-claim for violation of the “unlawful” prong of the unfair competition law on the grounds Sovereign engaged in the lawful business practice of purchasing patient referrals from-third parties as a result of which Health Net suffered substantial financial injury.

Health Net and Sovereign also move to seal documents submitted in support of the motion for summary adjudication, opposition to the motion for summary adjudication, and opposition to the motion for protective order and request for sanctions.

[Tentative] Ruling

1. Health Net’s Motions to Seal Documents Filed in Support of Motion for Summary Adjudication and Opposition to Motion for Summary Adjudication are GRANTED;

2. Sovereign’s Motion to Seal Documents Filed in Support of Opposition to Health Net’s Motion for Protective Order and Request for Sanctions is GRANTED.

DISCUSSION

1. HEALTH NET’S MOTION TO SEAL DOCUMENTS FILED IN SUPPORT OF MOTION FOR SUMMARY ADJUDICATION AND SOVEREIGN’S OPPOSITION TO HEALTH NET’S MOTION FOR SUMMARY ADJUDICATION

Health Net moves this court for an order sealing Exhibits 14, 17, 32, 38, 39, 40, 43 and B to the Declarations of Illena M. Hernandez and Bruce F. Deal as well as Paragraph 12 of Bruce F. Deal’s Declaration filed in support of Health Net’s Motion for Summary Adjudication of its Cross-Claim for Violation of the “Unlawful” Prong of California’s Unfair Competition Law (“MSA”).

Health Net also moves this court for an order sealing Exhibits M, P, and Q to the Declaration of Lisa S. Kantor filed in support of Sovereign’s Opposition to Health Net’s MSA. Sovereign does not oppose either motion.

California law authorizes the sealing of court records containing confidential information. (See NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1222, n. 46.) California Rules of Court Rule 2.551(a) provides that a record may not be filed under seal without a court order and the court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties. The party requesting a record be filed under seal must file a motion or an application for an order sealing the record that is accompanied by a memorandum or declaration containing facts to justify the sealing. (CRC Rule 2.551(b)(1).) “The court may order that a record be filed under seal” if it finds that there is an overriding interest in favor of maintaining the confidentiality of the information. (CRC Rule 2.550(d).)

The factual findings required to seal records require the court to expressly find that (1) there exists an overriding interest that overcomes the right of public access to the record; (2) the overriding interest supports sealing the record; (3) a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (CRC Rule 2.550(d)(1)-(5).)

The court finds good cause to seal the documents. Here, Health Net seeks to seal a Health Net claims spreadsheet with patient protected health information (Exhs. 38 and B), a deposition transcript that has been designated confidential because it contains or relates to patient protected health information (Exhs. 39 and 40), the stipulated list of patients at issue in this action (Exh. 43), copies of checks (Exhs. 14, 17, and 32), confidential communications between Health Net and the California Department of Insurance and confidential communications between Health Net and substance abuse treatment providers (Exhs. M, P, and Q), and the identity of two patients who allegedly received Sovereign’s mental health services (Deal Decl. ¶12), all of which contain patient protected health information, documents that were produced pursuant to the parties’ Stipulated Protective Order, or confidential communications.

A person has a constitutional right of privacy to his or her medical records. (John B. v. Superior Court (2006) 38 Cal.4th 1177, 1198.) “A person’s medical profile is an area of privacy infinitely more intimate, more personal in quality and nature than many areas already judicially recognized and protected.” (Hill v. Nat’l Collegiate Athletics Ass’n (1994) 7 Cal.4th 1, 41 [quoting Bd. of Med. Quality Assurance v. Gherardini (1979) 93 Cal.App.3d 669, 679]; see also Civ. Code § 56.10; 42 USC § 1320d et seq. (HIPPA) [health care providers generally may not disclose medical information without patient's authorization or court order].)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits 38, 39, 40, 43 and B as well as Paragraph 12 of Deal’s declaration. Sealing the records supports the overriding interest in preserving the patients’ right to privacy and there is a significant likelihood that Health Net’s overriding interests in protecting the confidential information will be prejudiced if the confidential information identified above is not sealed. Additionally, sealing these records as opposed to all the evidence in support of the protective order motion is narrowly tailored and the least restrictive means of avoiding violating the patients’ right to privacy over their protected health information.

Moreover, “documents subject to a protective order often remain outside public purview on a “good cause” showing akin to that which supported issuance of the protective order in the first place. (See Phillips v. General Motors Corp. (9th Cir.2002) 307 F.3d 1206, 1213 [“When a court grants a protective order for information produced during discovery, it already has determined that ‘good cause’ exists to protect this information from being disclosed to the public by balancing the needs for discovery against the need for confidentiality.”]” (Overstock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 484.)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits 14, 17, and 32. Sealing the records supports the overriding interest in not disclosing the contractual obligation not to disclose the details of checks made regarding certain patients. Additionally, not sealing these records would have a substantial probability of prejudicing Plaintiffs’ confidential information. Lastly, sealing these records as opposed to all the evidence in support of the summary adjudication motion is narrowly tailored and the least restrictive means of avoiding disclosing its own proprietary information and data.

In regards to the confidential/privileged communications, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits M, P, and Q. Sealing the records supports the overriding interest in not disclosing confidential/privileged communications between Health Net and the CDI/insurance providers regarding certain patients and their claims. Additionally, not sealing these records would have a substantial probability of prejudicing Plaintiffs’ confidential information. Lastly, sealing these records as opposed to all the evidence in support of the summary adjudication motion is narrowly tailored and the least restrictive means of avoiding disclosing its own proprietary information and data.

Based on the foregoing, Health Net’s Motion to Seal Documents Filed in Support of Health Net’s Motion for Summary Adjudication of its Cross-Claim for Violation of the “Unlawful” Prong and Sovereign’s Opposition to Health Net’s Motion for Summary Adjudication are GRANTED.

2. SOVEREIGN’S MOTION TO SEAL DOCUMENTS FILED IN SUPPORT OF SOVEREIGN’S OPPOSITION TO HEALTH NET’S MOTION FOR PROTECTIVE ORDER AND REQUEST FOR SANCTIONS

Sovereign moves this court for an order pursuant to Rules of Court 2.550 and 2.551 and the parties’ Stipulated Protective Order to seal certain documents filed as Exhibits C, D, E, G, and H to the Declarations of Timothy Rozelle in support of Plaintiffs’ Opposition to Health Net’s Motion for Protective Order and Request for Sanctions. Health Net does not oppose Plaintiffs’ Motion to Seal documents filed as Exhibits C, D, E, G, and H.

As detailed above, California law authorizes the sealing of court records containing confidential information. (See NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1222, n. 46.) The factual findings required to seal records require the court to expressly find that (1) there exists an overriding interest that overcomes the right of public access to the record; (2) the overriding interest supports sealing the record; (3) a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (CRC Rule 2.550(d)(1)-(5).)

The court finds good cause for sealing Sovereign’s Motion to Seal Documents Filed in Support of Opposition to Health Net’s Motion Protective Order and Request for Sanctions. Here, Sovereign seeks to seal spreadsheets of patient protected health information (Exh. C), a letter containing attachments with claim-related documents that include the protected health information of a patient (Exh. D), stipulated list of patients at issue (Exh. E), Sovereign’s responses to Health Net’s sixth set of special interrogatories contain the names of the Stipulated Patients (Exh. G), and a Health Net claims spreadsheet with patient protected health information (Exh. H). These documents consist of the protected health information of Health Net insureds whose claims are the subject of this action and who were treated by Sovereign.

A person has a constitutional right of privacy to his or her medical records. (John B. v. Superior Court (2006) 38 Cal.4th 1177, 1198.) “A person’s medical profile is an area of privacy infinitely more intimate, more personal in quality and nature than many areas already judicially recognized and protected.” (Hill v. Nat’l Collegiate Athletics Ass’n (1994) 7 Cal.4th 1, 41 [quoting Bd. of Med. Quality Assurance v. Gherardini (1979) 93 Cal.App.3d 669, 679]; see also Civ. Code § 56.10; 42 USC § 1320d et seq. (HIPPA) [health care providers generally may not disclose medical information without patient's authorization or court order].)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits C, D, E, G, and H. Sealing the records supports the overriding interest in preserving the patients’ right to privacy and to avoid dissemination of this sensitive information, and not sealing these records would have a substantial probability of prejudicing the patients’ interest. Additionally, sealing these records as opposed to all the evidence in support of the protective order is narrowly tailored and the least restrictive means of avoiding violating the patients’ right to privacy over their protected health information.

Based on the foregoing, Sovereign’s Motion to Seal Documents Filed in Support of Sovereign’s Opposition to Health Net’s Motion for Protective Order and Request for Sanctions is GRANTED.

Case Number: LC104357    Hearing Date: June 22, 2020    Dept: W

Dual Diagnosis Treatment Center, Inc., et al. v.

Health Net, Inc., et al.

motion for leave to amend to file answer, motions to seal, motion for stay of proceedings, motions to quash subpoenaS, and motion for court order addressing articles directed at defendants

Date of Hearing: June 22, 2020 Trial Date: January 25, 2021

Department: W Case No.: LC104357

BACKGROUND

On June 30, 2016, Plaintiffs Dual Diagnosis Treatment Center, Inc.; Satya Health of California, Inc.; Adeona Health Care, Inc.; Sovereign Health of Florida, Inc.; Sovereign Health of Phoenix, Inc.; Shreya Health of California, Inc.; Shreya Health of Florida, Inc.; Shreya Health of Arizona, Inc.; Sovereign Asset Management, Inc.; and Vedanta Laboratories, Inc. (“Sovereign” or “Plaintiffs”) filed a complaint against Defendants Health Net, Inc.; Health Net of California, Inc.; Managed Health Network, Inc.; and Health Net Life Insurance Company (“Health Net”) Plaintiffs are out-of-network substance abuse treatment providers that provided services to Health Net insureds in Southern California. Plaintiffs assert Defendants have either failed to pay or underpaid them using a payment method that went into effect in January 2016.

On April 9, 2019, Plaintiffs filed the operative Second Amended Complaint (“SAC”), asserting causes of action for (1) breach of contract; (2) breach of contract; (3) promissory estoppel; (4) violation of Cal. Bus. & Prof. Code § 17200, et seq.; (5) bad faith; and (6) bad faith.

On February 14, 2017, Cross-Complainant Health Net Life Insurance Company filed a cross-complaint against Plaintiffs/Cross-Defendants and Cross-Defendant Tonmoy Sharma, asserting causes of action for (1) common law fraud; (2) violation of RICO, 18 U.S.C. § 1962(c); (3) violation of RICO, 18 U.S.C. § 1962(c); (4) violation of the Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq.; (5) intentional interference with contractual relations; and (6) declaratory relief. Health Net asserts that Plaintiffs/Cross-Defendants engaged in insurance fraud by exploiting the Affordable Care Act and obtaining millions of dollars in reimbursement from Health Net for substance abuse treatment services. Health Net alleges that cross defendants purchased substance abuse treatment patients from “body brokers.”

Health Net successfully sought leave to file a First Amended Cross Complaint (FAXC). The new pleading added new defendants, Mohases, Mazim Management Group, Inc, DRMW, In and People for People, LLC (collectively “Mohases Entities”). The Mohases entities are alleged to be body brokers. Health Net also added additional allegations regarding wrongful conduct of cross defendants.

[Tentative] Ruling

1. Health Net’s Motion for Leave to File First Amended Answer to Plaintiffs’ Unverified Second Amended Complaint is GRANTED.

2. Plaintiffs’ Motion to Seal Documents Filed in Support of Opposition to Health Net’s Motion for Summary Adjudication is GRANTED; Health Net’s Motion to Seal Documents Filed in Support of Motion for Protective Order and Request for Sanctions is GRANTED.

3. Plaintiffs’ Motion to Quash Subpoena for Production for Business Records Issued to Timothy Weesner is GRANTED; Plaintiffs’ Motion to Quash Subpoena for Production for Business Records Issued to Diana Miltenburg; and Plaintiffs’ Motion to Quash Subpoena for Production for Business Records Issued to Hailey Hollers is GRANTED. However, the requested documents may be sought by other means.

4. Health Net’s Motion for Protective Order has been withdrawn by stipulation of the parties.

5. Mohases Entities’ Motion to Stay Proceeding is GRANTED, in part.

6. Health Net’s Request for Court Order Addressing Articles Directed at Defendants and Defendants’ Counsel is DENIED.

DISCUSSION

1. HEALTH NET’S MOTION FOR LEAVE TO FILE FIRST AMENDED ANSWER TO PLAINTIFFS’ UNVERIFIED SECOND AMENDED COMPLAINT

Health Net moves for an order granting it leave to file a First Amended Answer (“FAA”) to Plaintiffs’ unverified Second Amended Complaint (“SAC”). The proposed FAA adds the following affirmative defenses: 19 – Violation of California’s Insurance Anti-Kickback Law; 20 – Violation of California’s Anti-Referral Law; 21 – Violation of California Penal Code Sections 549- 550; 22 – Violation of California Insurance Code Section 1871.7; 23 – Violation of the Federal Health Care Fraud Statute; 24 – Violation of the Fraud Prong of the Unfair Competition Law; 25 – Violation of the Unfair Prong of the Unfair Competition Law; 26 – Preemption; 27 – Barred by Terms of Agreement; 28 – Estoppel (see id., 8:15-17); 29 – Waiver; 30 – Release; 31 – No Legal Duty or Obligation; 32 – Performance; 33 – No Causation; 34 – Intentional Acts of Others; 35 – No Damages; 36 – Assumption of Risk; 37 – Reasonable and Good Faith Conduct; 38 – Lack of Standing or Privity; and 39 – Conformity with Statutes, Regulations, and Industry Standards.

The proposed FAA also specifically requests that Health Net be awarded judgment in its favor and against Sovereign and reasonable attorney’s fees in the Prayer for Relief.

Pursuant to CCP §473(a)(1), “[t]he court may, in furtherance of justice, and on any terms as may be proper, allow a party to amend any pleading.” Amendment may be allowed at any time before or after commencement of trial. (CCP §576.) “[T]he court's discretion will usually be exercised liberally to permit amendment of the pleadings. The policy favoring amendment is so strong that it is a rare case in which denial of leave to amend can be justified.” (Howard v. Cty. of San Diego (2010) 184 Cal.App.4th 1422, 1428 (internal citations omitted).) “In particular, liberality should be displayed in allowing amendments to answers, for a defendant denied leave to amend is permanently deprived of a defense.” (Hulsey v. Koehler (1990) 218 Cal.App.3d 1150, 1159 (internal citations omitted).)  

A party requesting leave to amend must also comply with California Rules of Court, Rule 3.1324, by including a copy of the proposed amended pleading and attaching a declaration by counsel, as to (1) the effect of the amendment; (2) why the amendment is necessary and proper; (3) when the facts giving rise to the amended allegations were discovered; and (4) why the request was not made earlier. The motion itself must state what allegations in the previous pleading are proposed to be deleted and what allegations are proposed to be added to the previous pleading, and where, by page, paragraph, and line number, the deleted or additional allegations are located. (CRC Rule 3.1324(a).)

First, the court finds Health Net has substantially complied with CRC Rule 3.1324. Health Net has included a copy of the proposed amended answer, which includes the affirmative defenses that are to be added and the prayer for relief. (CRC Rule 3.1324(a).) The declaration of Health Net’s counsel claims the proposed amendment will address select factual and legal issues that aim to effectively and efficiently result in the resolution of substantive portions of Plaintiffs’ case. (CRC Rule 3.1324(b)(1).) Counsel also claims the amendment is necessary and proper because they further the interests of justice and judicial economy by allowing Health Net to assert vital affirmative defenses that may dispose of some or all of Plaintiffs’ causes of action against Health Net. Additionally, the amendments present discrete legal defenses that may reduce the number of insureds at issue in Plaintiffs’ causes of action based on the recent factual developments. (CRC Rule 3.1324(b)(2).) Moreover, Health Net’s counsel claims they discovered the need to assert the new affirmative defenses after its diligent and continued investigation led to the discovery including discovery of Plaintiffs’ alleged violations of state and federal statutes related to kickbacks, unfair competition, and various types of healthcare fraud and abuse. More specifically, Health Net has made many recent discoveries pertaining to the role of specific patients in Plaintiffs’ alleged tortious and unlawful scheme and was further supported by recent deposition testimony of Plaintiffs’ former employees. (CRC Rule 3.1324(b)(3),(4).)

In opposition, Sovereign argues Health Net has failed to demonstrate that it timely sought to impose any wrongdoing on Sovereign patients. Sovereign also contends neither the proposed amended answer nor the motion connects the new information Health Net allegedly discovered against Sovereign’s patients to any proposed new affirmative defense. Specifically, the problem with Health Net’s motion is that it does not reveal what it has discovered, when it discovered it, and what affirmative defenses are “necessary and proper” as a result of this discovery.

The court disagrees. Health Net has explained that it sought leave to file the FAA after its review of Sovereign’s voluminous document production revealed new factual and legal grounds for additional affirmative defenses based on, among other things, Sovereign’s violations of state and federal statutes related to kickbacks, unfair competition, and various types of healthcare fraud and abuse. (Hernandez Decl. ¶8.) For example, Health Net contends the FAA adds Affirmative Defenses Nos. 19–25 to break out the specific laws Sovereign violated. Moreover, discovery is ongoing in this case and as such, Sovereign has not demonstrated it will be prejudiced by having to conduct discovery into specific patients.

Sovereign next argues Health Net’s proposed affirmative defenses twenty and twenty-two and Health Net’s request for attorney fees fail as a matter of law. These substantive attacks on Health Net’s affirmative defenses are inappropriate because these inquiries should be addressed through a fully briefed dispositive motion. See, e.g., Cal. Cas. Gen. Ins. Co. v. Super. Ct., 173 Cal. App. 3d 274, 280–81 (1985) (finding it inappropriate to refuse amendment unless legal insufficiency is “established by controlling precedent” and “could not be cured by further appropriate amendment,” and that leave

to amend should not be denied based on a perceived “lack of substantive vitality” of the

defense).

Sovereign cannot establish legal insufficiency as matter of law. Sovereign contends litigants may not predicate a UCL claim on a statute in which a private right of action is “absolutely barred.” Health Net’s twentieth affirmative defense is for “Violation of California’s Anti-Referral Law, set forth in Health & Safety Code § 445” and asserts that “Plaintiffs are estopped from recovering some or all of the relief sought in the Complaint” because Plaintiffs violated §445 “which in turn constitutes a violation of the unlawful prong of the Unfair Competition Law, as set forth at Cal. Bus & Prof. Code.” Similarly, Health Net’s proposed twenty-second affirmative defense is for “Violation of California Insurance Code § 1871.7” and asserts that “Plaintiffs are estopped from recovering some or all of the relief sought in the Complaint” because Plaintiffs violated § 1871.7, banning the use of runners and cappers to obtain patients, “which in turn constitutes a violation of the unlawful prong of the Unfair Competition Law, as set forth at Cal. Bus & Prof. Code.”

As for California Insurance Code section 1871.7, while defendant might be limited in its ability to procure affirmative relief under this section, there is no prohibition on its raising this statute’s prohibition as an affirmative defense. As for Health & Safety Code section 445, the statute explicitly provides that “any violation of this section may be enjoined in a civil action brought in the name of the people of the State of California by the Attorney General.” (emphasis added.) The section does not mandate that a violation of section 445 be brought by the Attorney General. Nothing in the section indicates that its violation cannot be raised as an affirmative defense in the appropriate case.

Finally, Sovereign argues Health Net offers no explanation for its request for attorney fees. Attorney fees can only be awarded when authorized by contract, statute or law. Review of the proposed amended answer shows the only applicable statute for attorney fees is California Insurance Code section 1871.7(g)(5). While a violation of Section 1871.7 may be an affirmative defense, that does not mean that it gives rise to a claim for damages or attorney’s fees, unless the complainant has compied with the qui tam procedures set forth in the statute. The court agrees with plaintiffs that the request to amend the answer should not allow amendment to add an attorney’s fee request that is unsupported by any statute.

Finally, Sovereign argues Health Net should not be allowed to assert ERISA preemption as an affirmative defense because ERISA preemption claims are waived unless timely raised. Sovereign contends Health Net first raised a potential ERISA defense eight months ago, on October 10, 2019, in opposition to Sovereign’s motion for summary adjudication. Sovereign further contends it has been prejudiced because Health Net has failed to provide the necessary disclosure as required by ERISA regulations.

While it is true that “where the defense of federal preemption involves choice of law rather than subject matter jurisdiction, it may be waived by failure to raise it properly in the trial court” (Hughes v. Blue Cross of Northern California (1989) 215 Cal.App.3d 832, 851; Gilchrist v. Jim Slemons Imports, Inc. (9th Cir. 1986) 803 F.2d 1488, 1497), Health Net is raising it in the trial court. Health Net is seeking to assert ERISA preemption as an affirmative defense in its FAA, not on appeal.

While “courts are much more critical of proposed amendments to answers when offered after long unexplained delay or on the eve of trial [Citations], or where there is a lack of diligence, or there is prejudice to the other party. [Citations]” (Permalab-Metalab Equipment Corp. v. Maryland Cas. Co. (1972) 25 Cal.App.3d 465, 472), this is not the case here. This request to amend is months before trial and while Health Net first raised the issue of ERISA preemption at Sovereign’s motion for summary adjudication, that does not mean it has now been brought after a long unexplained delay. Moreover, Sovereign has failed to show any prejudice.

Based on the foregoing, Health Net’s Motion for Leave to File First Amended Answer to Plaintiffs’ Unverified Second Amended Complaint is GRANTED wth the exception of the request for attorney’s fees.

2. PLAINTIFFS’ MOTION TO SEAL DOCUMENTS FILED IN SUPPORT OF OPPOSITION TO HEALTH NET’S MOTION FOR SUMMARY ADJUDICATION AND HEALTH NET’S MOTION TO SEAL DOCUMENTS FILED IN SUPPORT OF MOTION FOR PROTECTIVE ORDER

Sovereign moves this court for an order pursuant to Rules of Court 2.550 and 2.551 and the parties’ Stipulated Protective Order to seal certain documents filed as Exhibits B, C, T, U, V, W, X, Y, and Z to the Declarations of Lisa S. Kantor, Melody Yen, Mandeep Kumar, and Kevin Gallagher in support of Plaintiffs’ Opposition to Health Net’s Motion for Summary Adjudication of its Cross-Claim for Violation of the “Unlawful” Prong of the Unfair Competition Law section. Health Net does not oppose Plaintiffs’ Motion to Seal documents filed as Exhibits B, C, T, U, V, W, X, Y, and Z.

Health Net moves this court for an order sealing Exhibits L, M, N, O, P, Q, R, S, T, and U to the Declaration of Illena M. Hernandez filed in support of Health Net’s Motion for Protective Order and Request for Sanctions. Sovereign does not oppose Health Net’s Motion to Seal Documents Filed in Support of Motion for Protective Order and Request for Sanctions.

California law authorizes the sealing of court records containing confidential information. (See NBC Subsidiary, Inc. v. Superior Court (1999) 20 Cal.4th 1178, 1222, n. 46.) California Rules of Court Rule 2.551(a) provides that a record may not be filed under seal without a court order and the court must not permit a record to be filed under seal based solely on the agreement or stipulation of the parties. The party requesting a record be filed under seal must file a motion or an application for an order sealing the record that is accompanied by a memorandum or declaration containing facts to justify the sealing. (CRC Rule 2.551(b)(1).) “The court may order that a record be filed under seal” if it finds that there is an overriding interest in favor of maintaining the confidentiality of the information. (CRC Rule 2.550(d).)

The factual findings required to seal records require the court to expressly find that (1) there exists an overriding interest that overcomes the right of public access to the record; (2) the overriding interest supports sealing the record; (3) a substantial probability exists that the overriding interest will be prejudiced if the record is not sealed; (4) the proposed sealing is narrowly tailored; and (5) no less restrictive means exist to achieve the overriding interest. (CRC Rule 2.550(d)(1)-(5).)

The court finds good cause for sealing Plaintiffs’ Motion to Seal Documents Filed in Support of Opposition to Health Net’s Motion for Summary Adjudication of its Cross-Claim for Violation of the “Unlawful” Prong of the Unfair Competition Law.

Here, Sovereign seeks to seal deposition transcripts that contain or relate to patient protected health information (Exhs. B and C), marketing consulting agreements entered into between Sovereign and Christian Rehab Network and Sovereign and Elite Rehab Placement (Exhs. T and U), spreadsheets of patient protected health information (Exhs. V-Y), and a spreadsheet containing Sovereign’s proprietary information (Exh. Z). These documents consist of either (1) the protected health information of Health Net insureds whose claims are the subject of this action and who were treated by Sovereign and/or (2) documents that were produced pursuant to the parties’ Stipulated Protective Order and are proprietary and confidential in nature.

A person has a constitutional right of privacy to his or her medical records. (John B. v. Superior Court (2006) 38 Cal.4th 1177, 1198.) “A person’s medical profile is an area of privacy infinitely more intimate, more personal in quality and nature than many areas already judicially recognized and protected.” (Hill v. Nat’l Collegiate Athletics Ass’n (1994) 7 Cal.4th 1, 41 [quoting Bd. of Med. Quality Assurance v. Gherardini (1979) 93 Cal.App.3d 669, 679]; see also Civ. Code § 56.10; 42 USC § 1320d et seq. (HIPPA) [health care providers generally may not disclose medical information without patient's authorization or court order].)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits B, C, V-Y. Sealing the records supports the overriding interest in preserving the patients’ right to privacy and to avoid dissemination of this sensitive information, and not sealing these records would have a substantial probability of prejudicing the patients’ interest. Additionally, sealing these records as opposed to all the evidence in support of the summary adjudication motion is narrowly tailored and the least restrictive means of avoiding violating the patients’ right to privacy over their protected health information.

Moreover, “documents subject to a protective order often remain outside public purview on a “good cause” showing akin to that which supported issuance of the protective order in the first place. (See Phillips v. General Motors Corp. (9th Cir.2002) 307 F.3d 1206, 1213 [“When a court grants a protective order for information produced during discovery, it already has determined that ‘good cause’ exists to protect this information from being disclosed to the public by balancing the needs for discovery against the need for confidentiality.”]” (Overstock.com, Inc. v. Goldman Sachs Group, Inc. (2014) 231 Cal.App.4th 471, 484.) California courts have also recognized protection of trade secrets and enforcement of binding contractual obligations not to disclose constitute “overriding interests” supporting the sealing of records. (See, e.g., NBC subsidiary (KNBC-TV), Inc. v. Superior Court (1999) 20 Cal. 4th 1178, 1223 n.46 (citing Publicker Indus., Inc. v. Cohen (3d Cir. 1984) 733 F.2d 1059, 1073).)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits T, U, Z. Sealing the records supports the overriding interest in not disclosing Plaintiffs’ trade secrets and the contractual obligation not to disclose the details of the marketing consulting agreement. Additionally, not sealing these records would have a substantial probability of prejudicing Plaintiffs’ confidential, proprietary information. Lastly, sealing these records as opposed to all the evidence in support of the summary adjudication motion is narrowly tailored and the least restrictive means of avoiding disclosing its own proprietary information and data.

As for Health Net’s Motion to Seal Documents Filed in Support of Health Net’s Motion for Protective Order and Request for Sanctions, the court finds good cause. Here, Health Net seeks to seal claim-related documents, including Health Net correspondence and a Health Net claims spreadsheet (Exhs. L, M, N, O, and U), claim-related Plaintiffs’ treatment records (Exhs. P, Q, and R), claim-related service authorization documents (Exh. S), and employer health plans (Exh. T), all of which contain patient protected health information.

A person has a constitutional right of privacy to his or her medical records. (John B. v. Superior Court (2006) 38 Cal.4th 1177, 1198.) “A person’s medical profile is an area of privacy infinitely more intimate, more personal in quality and nature than many areas already judicially recognized and protected.” (Hill v. Nat’l Collegiate Athletics Ass’n (1994) 7 Cal.4th 1, 41 [quoting Bd. of Med. Quality Assurance v. Gherardini (1979) 93 Cal.App.3d 669, 679]; see also Civ. Code § 56.10; 42 USC § 1320d et seq. (HIPPA) [health care providers generally may not disclose medical information without patient's authorization or court order].)

Thus, the court finds there is an overriding interest that overcomes the public’s right to access Exhibits L, M, N, O, P, Q, R, S, T, and U. Sealing the records supports the overriding interest in preserving the patients’ right to privacy and there is a significant likelihood that Health Net’s overriding interests in protecting the confidential information will be prejudiced if the confidential information identified above is not sealed. Additionally, sealing these records as opposed to all the evidence in support of the protective order motion is narrowly tailored and the least restrictive means of avoiding violating the patients’ right to privacy over their protected health information.

Based on the foregoing, Plaintiffs’ Motion to Seal Documents Filed in Support of Opposition to Health Net’s Motion for Summary Adjudication and Health Net’s Motion to Seal Documents Filed in Support of Motion for Protective Order are GRANTED.

3. PLAINTIFFS’ MOTION TO QUASH SUBPOENA FOR PRODUCTION FOR BUSINESS RECORDS ISSUED TO TIMOTHY WEESNER, DIANA MILTENBURG, AND HAILY HOLLERS AND ISSUE A PROTECTIVE ORDER

Sovereign moves this court for an order against Health, quashing the subpoena for production of business records issued to Timothy Weesner, Diana Miltenburg, and Hailey Hollers by Health Net; issuance of a protective order regarding the subpoena for production of business records issued to Timothy Weesner, Diana Miltenburg, and Hailey Hollers by Health Net; and imposition of sanctions in the amount of $22,500 against Health Net.

Sovereign claims Timothy Weesner, Diana Miltenburg, and Hailey Hollers are not, and never have been, the custodian of records for Sovereign; the subpoena asks for the medical records of patients treated by Plaintiffs but failed to give the proper notice required by CCP §1985.3(b); the witnesses have no right to produce the confidential business records of Plaintiffs; and the subpoena is overbroad and seeks privileged information (CCP §2017.020).

Meet and Confer

Code of Civil Procedure section¿2025.410(c) provides that a motion to quash a deposition notice must be accompanied by a meet and confer declaration. The court finds that Plaintiffs have satisfied the meet and confer requirement.

Discussion

Plaintiffs first claim Weesner, Miltenburg, and Hollers are not, and never were, the custodian of Plaintiffs’ business records under Code of Civil Procedure section 2020.410(c) and Evidence Code section 1561.

“A deposition subpoena that commands only the production of business records for copying . . . shall be directed to the custodian of those records or another person qualified to certify the records.” (CCP §2020.410(c).) Under Evidence Code section 1561, a custodian of records must be able to certify the records, identify the records, and state that the records were prepared in the ordinary course of business.

The custodian of records, Melody Yen, declares Hailey Hollers was a clinician at Plaintiffs’ San Clemente facility (Exhs. D, F), Diana Miltenburg was a senior clinician at Plaintiffs’ San Clemente facility (Exhs. G, I), and Timothy Weesner was a clinician at Plaintiffs’ Palm Desert facility (Exhs. J, L). (Yen Decl., ¶¶2-10.) Neither Hollers, Miltenburg, nor Weesner are or have been the custodian of records for any of Plaintiffs’ entity or facility. (Yen Decl., ¶¶11-13.) Plaintiffs contend merely having possession of the records is not enough and as such, none of these witnesses meet the requirements of Code of Civil Procedure section 2020.410(c) or Evidence Code section 1561.

In opposition, Health Net notes section 2020.410(c) states that a deposition subpoena may be directed to the custodian of records or “another person qualified to certify the records.” (Emphasis added). Section 1561(a) states that business records may be authenticated by the affidavit of the custodian “or another qualified witness” with personal knowledge of the factors described therein. (Emphasis added). Here, Health Net contends, the three witnesses are each qualified to certify any records in their possession as to how they obtained those records, how those records were prepared, and the identity of such records.

While the three witnesses need not be the custodian or the person who created the records, they must have the authority to certify the records on behalf of Plaintiffs. (Evid. Code §1561(a)(1).) Each witness is a former employee of Sovereign and, therefore, is unable to “certify” Plaintiffs’ records on behalf of Plaintiffs as required by Evidence Code section 1561(a)(1). As further evidence of the fact that the three witnesses are not authorized to “certify” these documents, Sovereign submits evidence indicating that Weesner, Miltenburg, and Hollers signed a Confidentiality Agreement indicating that they were required upon termination of their employment to return any confidential information. (Yen Decl. ¶3, Exh. E.)

As such, the court quashes the subpoena for production of business records issued to Timothy Weesner, Diana Miltenburg, and Hailey Hollers based on Evidence Code section 1561. In so ruling, the court merely finds that the deposition method selected by defendants fails because it treats the documents as business records. For the reasons set forth below, the court concludes that all of these records are properly obtained by a regular deposition subpoena seeking testimony of a witness and production of records. The court does not understand why defendants choice to proceed with a subpoena for business records only; presumably, it had already taken the depositions of these witnesses, discovered the documents during the course of those depositions and did not want to seek leave of court to issue new deposition subpoenas.

Sovereign next claims Health Net did not comply with Code of Civil Procedure section 1985.3, which requires that the subpoenaing party shall serve or cause to be served on the consumer whose records are being sought a copy of the subpoena duces tecum, of the affidavit supporting the issuance of the subpoena, if any, and of the notice. (CCP §1985.3(b).)

The subpoena served on Hollers, Miltenburg, and Weesner included a request for production of documents including patient medical records, documents concerning scholarships provided to any patients, and documents concerning the intake, diagnosis, examination, treatment, and/or discharge of patients treated by Plaintiffs. (Kantor Decl. ¶3, Exh. A.) Sovereign contends, however, Health Net has not given notice to Sovereign or any Plaintiffs’ patients that their medical records are being requested.

In opposition, Health Net contends it did not have to serve “Notices to Consumer” because the documents sought are not personal records “maintained by any ‘witness’” within the meaning of Code of Civil Procedure section 1985.3(a)(1). Moreover, Health Net contends the three witnesses did not transact business with or provide services to said patients as required by Code of Civil Procedure section 1985.3(a)(2). The court agrees that consumer notice to these former patients is not required in this case because these three individuals did not “maintain” patient records, by plaintiff’s own admission. In addition, the patients did not transact business ith or receive services from the witnesses, but rather from their employer, Sovereign. Further, as a practical matter, the court cannot conceive of how consumer notice would be given, in a case such as this, where a former employee may have taken key documents exposing a former employer’s misconduct, but which contain names of patients or customers unknown to the subpoenaing party.

Consumer notice, however, does need to be provided to plaintiffs, since Section 1985.3(a)(2) defines “Consumer” as: [A]ny individual, partnership of five or fewer persons, association, or trust which has transacted business with, or has used the

services of, the witness or for whom the witness has acted as agent

or fiduciary. (Emphasis added).” Here, the individual clinicians certainly served as plaintiffs’ agent, at least in the past.

Plaintiffs also claim Hollers, Miltenburg, and Weesner have no right to produce Plaintiffs’ business records as each witness signed a confidentiality agreement prohibiting them from producing documents including “but it not limited to information regarding [Sovereign’s] files, finance, procedures, patient financial or health information, etc.” (Yen Decl., ¶¶ 2, 5, 8; Exhs. D, G, J.) The witnesses also agreed not to remove any confidential information. (Yen Decl., ¶¶ 3, 6, 9; Exhs. E, H, K.) As such, Sovereign requests this court issue a protective order that these requested documents not be produced. (CCP §§2017.020, 2025.420(b)(11).)

In opposition, Health Net contends it is legally entitled to conduct discovery and the confidentiality agreement does not justify withholding the subpoenaed documents. Moreover, even if the confidentiality agreements could be enforced, the agreements expressly state the three witnesses may disclose Sovereign’s confidential information “as required by law.” (Yen Decl., Exhs. E, H, and K.) The court sees no legal basis to allow the plaintiff to enforce a confidentiality agreement to preclude its former employees from producing relevant evidence in this case. As the parties have already entered into a “robust” stipulated protective order, any documents which contain proprietary or patient information can be produced subject to that protective order.

Lastly, Sovereign claims the subpoenas are overbroad and seeks privileged documents. Specifically, Sovereign claims that the dispute between the parties concerns 469 Health Net patients treated by Sovereign; however, “Patients” are defined in the subpoenas as “any person” who sought or received treatment by Sovereign at any time. Sovereign also argues that the subpoena seeks a variety of documents from January 1, 2014 even though the patients at issue in the lawsuit were treated in 2015 and 2016 as well as seeks communications concerning investigations by state and federal agencies. As such, Sovereign requests this court issue a protective order that these requested documents shall not be produced by Hollers, Miltenburg, or Weesner. (CCP §§2017.020, 2025.420(b)(11).)

Although the court has found the subpoenas were improper as the three witnesses do not have authority to certify the records as business records, the court finds the requests are not overbroad nor do they seek privileged documents. As noted by Health Net, the FAXC alleges that Sovereign engaged in an indiscriminate pattern and practice of billing fraud, which included non-Health Net insureds and is discoverable. Moreover, the FAXC alleges Sovereign’s single-largest provider, Mohases Entities, began forming in late 2014, which lays the framework for the criminal patient-selling enterprise. Lastly, the case cited by Sovereign, Dickens v. Provident Life & Accidents Insurance Company (2004) 117 Cal.App.4th 705, does not support Sovereign’s contention communications concerning investigations by state and federal agencies is protected from disclosure. In Dickens, the court held the communications were protected in terms of the anti-SLAPP statute.

Accordingly, while the court will grant the motion to quash, that ruling is based on narrow procedural grounds and may be remedied by a different type of deposition subpoena and consumer notice to the Soverein plaintiffs.

Sanctions

Sovereign requests sanctions against Health Net in the amount of $7,500. Code of Civil Procedure section 1987.2 provides that the court “may in its discretion award the amount of the reasonable expenses incurred in making or opposing the motion, including reasonable attorney’s fees, if the court finds the motion was made or opposed in bad faith or without substantial justification or that one or more of the requirements of the subpoena was oppressive.”

Sovereign claims Health Net has blatantly disregarded settled law regarding the issuance of business subpoenas including Health Net failed to timely serve Sovereign with copies of the subpoenas, Defendants issued business records subpoenas to witnesses who they know are not the custodian of records, and Defendants have failed and refused to give notice to patients that their medical records are being sought.

Health Net also seeks sanctions against Sovereign in the amount of $6,868. Health Net contends Sovereign’s conduct is sanctionable because Sovereign proceeded immediately to reserve hearing dates without meeting and conferring and there is no legal basis for the instant motion. (See CCP §2023.010(e),(i); CCP §2031.060(h); and CCP §1987.2(a).)

The court finds there being substantial justification, with merit to both sides, denies the request for sanctions.

4. MOHASES ENTITIES’ MOTION TO STAY CIVIL PROCEEDINGS

Mohases Entities move for an order staying the instant action pending resolution of the criminal proceedings currently against Cross-Defendant Mahyar Mohases.

Request for Judicial Notice

Mohases Entities request this court take judicial notice of the First Amended Cross-Complaint filed January 31, 2019 in this action by Health Net (Exhibit A) and the Case Summary of The People of the State of California v. Mahyar Mohases, Orange County Superior Court Case No. 20CF0067 (Exhibit B.)

The court grants Mohases Entities’ Request.

Discussion

“The decision whether to stay civil proceedings in the face of a parallel criminal proceeding should be made ‘in light of the particular circumstances and competing interests involved in the case.’ This means the decisionmaker should consider ‘the extent to which the defendant’s fifth amendment rights are implicated.’ In addition, the decisionmaker should generally consider the following factors: (1) the interest of the plaintiffs in proceeding expeditiously with this litigation or any particular aspect of it, and the potential prejudice to plaintiffs of a delay; (2) the burden which any particular aspect of the proceedings may impose on defendants; (3) the convenience of the court in the management of its cases, and the efficient use of judicial resources; (4) the interests of persons not parties to the civil litigation; and (5) the interest of the public in the pending civil and criminal litigation.” (Avant! Corp. v. Superior Court (2000) 79 Cal.App.4th 876, 885 (Citations Omitted).)

A felony complaint has been filed against Cross-Defendant Mahyar Mohases in connection with the acts alleged in Health Net’s cross-complaint. (Meyer Dec., ¶ 2.) In the criminal proceedings against Cross-Defendant Mahyar Mohases (Case No. 20CF0067), Mohases has been charged with two counts of fraudulent claims for health benefit, both of which contain sentence enhancements, one count of making false or fraudulent claims, also with a sentence enhancement, and six counts of money laundering derived from criminal activity, two of which carry sentence enhancements. (Meyer Dec., ¶ 2.) According to Mohases’ criminal attorney, the criminal case and investigation are currently active and in the continued arraignment phase. (Meyer Dec., ¶ 3.) While there is no set date for trial and no date for a preliminary hearing at this stage, the criminal case could take a year or more to get to trial. (Meyer Decl. ¶3.)

The court finds Cross-Defendant Mahyar Mohases’ fifth amendment rights are implicated by this case. In Health Net’s FAXC, Health Net asserted claims against the Mohases Entities for Common Law Fraud, Violation of RICO (18 U.S.C. §1962(c)), Violation of California Business & Professions Code section 17200 et seq., Intentional Interference with Contractual Relations, and Declaratory Relief. Health Net alleges Mohases was the incorporator, sole director, and sole officer of Maxim Management Group, Inc. and CRMW, Inc. and was the sole manager of People For People, LLC (FAXC, ¶¶ 29-31.) Health Net further alleges Mohases additionally is liable for the obligations and liabilities of the Mohases Entities as “alter egos” of each other and established and/or used such entities for the perpetration of a fraudulent scheme. (FAXC, ¶37.) As an officer and owner of the Mohases Entities, Health Net alleges Mohases knowingly and willfully recruited and obtained patients using illegal kickbacks, fraudulently made payments for premiums on behalf of its insureds, and submitted thousands of claims for payment to Health Net, which contained false representations and concealed materials. (See FAXC generally.)

Health Net opposes on the grounds the mere pendency of a criminal proceeding does not require a stay of a civil action (see Avant! Corp. v. Superior Court (2000) 79 Cal.App.4th 876, 882) and the Mohases Entities have not carried their burden of establishing prejudice to their constitutional rights. Health Net notes three of the moving Mohases Cross-Defendants are corporate entities that have no Fifth Amendment rights, and the sole individual Cross-Defendant has already invoked his Fifth Amendment rights.

Sovereign joins the Mohases Entities motion to the extent that it asks the Court to sever and stay the Mohases claims on the grounds the allegations in Health Net’s First Amended Cross-Complaint easily lend themselves to severance and there will be no inefficiency or prejudice if allegations against the Mohases Entities as to enrollment applications are severed and placed in a separate complaint.

The court finds the remaining parties will suffer prejudice by delay in the case and it will interfere with the court’s management of its cases if the entire case is stayed. As Health Net noted, the Mohases Entities are only four of sixteen cross-defendants in the instant action and only one of them has the has fifth amendment rights. (Avant! Corp., supra, 79 Cal.App.4th at p. 883.) Moreover, litigation has already gone on for nearly four years and much discovery remains to be completed. However, as discussed above, Mahyar Mohases’ fifth amendment rights are implicated by this case.

For these reasons, the court exercises its broad discretion in severing cross-complaints. Code of Civil Procedure section 1048 provides that “[t]he court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any cause of action, including a cause of action asserted in a cross-complaint…” (CCP § 1048(b).) Moreover, Code of Civil Procedure section 128(a)(8) gives the court the power “[t]o amend and control its process and orders so as to make them conform to law and justice. The court has broad discretion to sever cross-complaints.” (Vegetable Oil Products Co. v. Superior Court (1963) 213 Cal.App.2d 252; see also Omni Aviation Managers, Inc. v. Municipal Court (1976) 60 Cal.App.3d 682, 684.) The court finds severance of the Mohases Entities will promote judicial efficiency and fairness.

Based on the foregoing, Mohases Entities’ Motion for Stay of Civil Proceedings is GRANTED, in part. The court severs the case against the Mohases Entities and stays the civil proceedings against the Mohases Entities.

5. HEALTH NET’S REQUEST FOR COURT ORDER ADDRESSING ARTICLES DIRECTED AT DEFENDANTS AND DEFENDANTS’ COUNSEL

Health Net moves (1) to inform the Court about allegedly inflammatory and prejudicial articles posted on purported news websites about this litigation, designed to attack the credibility and ethics of defense counsel in this case, chill their representation on behalf of their clients, and prejudice the jury pool, and (2) to seek an appropriate order from the Court inquiring as to Plaintiffs’ or their agents’ role in the creation of the articles and/or permitting appropriate expedited discovery. Health Net makes the motion pursuant to Code of Civil Procedure section 128.

“‘California's Constitution provides the courts, including the Courts of Appeal, with inherent powers to control judicial proceedings. [Citations.] To the same effect, Code of Civil Procedure section 128, subdivision (a)(8) authorizes every court ‘[t]o amend and control its process and orders so as to make them conform to law and justice.’ This provision is consistent with and codifies the courts' traditional and inherent judicial power to do whatever is necessary and appropriate, in the absence of controlling legislation, to ensure the prompt, fair, and orderly administration of justice.’ [Citations.] (Kinney v. Clark (2017) 12 Cal.App.5th 724, 740.)

Health Net contends since May 18, 2020, eight internet articles have appeared attacking the ethics and integrity of defense counsel in this case and stating as a fact that they engaged in unlawful, even criminal, conduct in representing Health Net in connection with the subject matter before this court. Health Net further contends, according to expert forensic analysis, all of the articles have been created by the same person, using different false aliases, and posted on different websites all with the same contact information, address and phone number. (Racich Decl. ¶4.) The expert forensic analysis has also revealed that the person behind these websites and possibly the posts appears to be a computer consultant residing in Pune, India where Plaintiffs have or had corporate operations. (Racich Dec. ¶¶4(b), 11; LeBlanc Decl. ¶3.)

Health Net argues this conduct impacts the proceeding before this court, is part of a campaign to discredit and harass lawyers practicing before this court, and because the pieces are displayed when one searches the names of counsel, they also threaten to contaminate the jury pool, especially if this malicious campaign continues. As such, Health Net asks this court to exercise its statutory and inherent authority to conduct an appropriate inquiry, including requiring Plaintiffs and their agents and counsel to attest under oath whether they have any connection to these attacks and/or approve expedited discovery into Exhibits 1 and 2 of LeBlanc’s Declaration. If Plaintiffs are found to have solicited or authored these pieces, Health Net requests that the court enter an order requiring the conduct to cease and for any other relief the court believes appropriate.

California Rules of Professional Conduct 3.6 states: “A lawyer who is participating or has participated in the investigation or litigation of a matter shall not make an extrajudicial statement that the lawyer knows or reasonably should know will (i) be disseminated by means of public communication and (ii) have a substantial likelihood of materially prejudicing an adjudicative proceeding in the matter.”

Here, plaintiffs’ counsel have voluntarily provided declarations, denying any involvement in the creation of the blogs and the posting of the articles at issue here. Even without these disclaimers, the court does not find that defendants have met the requirements to trigger an examination under Rule 3.6. There is nothing on the face of these articles, or the forum in which they have been published, which creates “the substantial likelihood of materially prejudicing an adjudicative proceeding.” The court is not prejudiced against plaintiffs by these articles, which for the most part report on allegations made in a parallel federal proceeding, and thus are protected speech. No jury has been empaneled, nor is the case in the final stages leading up to jury selection. There is no evidence before the court that these articles have been picked up by local print or television news. Further the court generally agrees with plaintiffs that the better approach to safeguard a fair trial is to question prospective jurors during voir dire as to whether they are aware of any publicity about the case and, if so, whether they could put

aside any impression or opinion and decide the case on the facts. (People v. Panah (2005) 35 Cal.4th 395, 448; Securities and Exchange Commission v. Christian Stanley, Inc. (C.D. Cal.) 2012 WL 13012479 at *2.)

Finally, the court observes that plaintiffs and their counsel have significant free speech interests, which outweigh (at least on this record) the defendants’ interest in requiring them to divulge their communications with the press or other third parties about issues relating to this case. Because Health Net has not shown a substantial likelihood of materially prejudicing the case at hand, Health Net’s request is denied at this juncture.

Based on the foregoing, Health Net’s request for a court order addressing articles directed at Defendants and Defendants’ counsel is DENIED.

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