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Smith v. Adventist Health System/West

March 4, 2010

BRENTON R. SMITH ET AL., PLAINTIFFS AND RESPONDENTS,
v.
ADVENTIST HEALTH SYSTEM/WEST ET AL. DEFENDANTS AND APPELLANTS.



APPEAL from a judgment of the Superior Court of Kings County. Thomas DeSantos, Judge. (Super. Ct. No. 08C0069).

The opinion of the court was delivered by: Dawson, J.

CERTIFIED FOR PARTIAL PUBLICATION*fn1

OPINION

This appeal is another chapter in the litigation between Dr. Brenton R. Smith and three hospitals run by Adventist Health System/West. (See Smith v. Selma Community Hospital (2008) 164 Cal.App.4th 1478 [hospital governing board erroneously revoked Smith's staff membership and hospital privileges]; Central Valley General Hospital v. Smith (2008) 162 Cal.App.4th 501 [litigation resulting from failure to consummate sale of Smith's clinics to hospital chain].)

To implement our decision in Smith v. Selma Community Hospital, the superior court ordered the hospital to allow Smith to exercise privileges at Selma Community Hospital for one year, after which Smith would be obliged to reapply. When Smith reapplied, his reapplication was rejected on the ground he was ineligible. Smith filed this lawsuit and asked that his status at Selma Community Hospital be restored until this lawsuit was decided. The superior court granted a preliminary injunction that restored Smith's privileges. Adventist Health System/West and its affiliates appealed.

We conclude that the superior court did not err when it (1) impliedly found that a statutorily required injunction bond had been waived or forfeited, (2) expressly found that Smith was likely to prevail on the merits, and (3) balanced the likely interim harm to the parties of granting or denying the preliminary injunction. Consequently, the order granting the preliminary injunction will be affirmed.

FACTS AND PROCEEDINGS

Parties

The plaintiffs in this lawsuit are Smith and two corporations (jointly, Smith) through which he provides medical care to his patients: (1) Valley Family Health Center Medical Group, Inc., and (2) Central Valley Maternal and Child Care Centers, Medical Group, Inc.

The defendants include (1) Adventist Health System/West, (2) Selma Community Hospital, (3) Hanford Community Medical Center, (4) Central Valley General Hospital, and (5) Richard Rawson, chief executive officer of Hanford Community Medical Center and the former president of Selma Community Hospital. We refer to these defendants collectively as Hospital Group.

The other defendants are: (1) the Consolidated Medical Staff of Central Valley General Hospital, Selma Community Hospital and Hanford Community Medical Center and (2) Nicolas E. Reiber, M.D., the chief of the consolidated staff. Collectively, these defendants are referred to as CMStaff. We refer to the combination of Hospital Group and CMStaff as Adventist Health.

Adventist Health System/West owns, directly or through its subsidiaries, Selma Community Hospital, Hanford Community Medical Center, and Central Valley General Hospital. Selma Community Hospital, Inc., the corporation that held the license to operate Selma Community Hospital, retired its license and leased the facilities to Hanford Community Medical Center. It appears that Hanford Community Medical Center has operated the Selma facility under its license since October 2005.

It also appears that the medical staffs of the hospitals were reorganized around the same time. Prior to the reorganization, the medical staff of Selma Community Hospital was organized as a separate entity. After the reorganization, the medical staffs of the hospitals were a single entity, CMStaff, which adopted its own bylaws (Bylaws).

Rejection of Smith's Application

The disputes between Smith and Adventist Health are manifold. The dispute regarding Smith's hospital privileges and medical staff membership at Selma Community Hospital is described in Smith v. Selma Community Hospital, supra, 164 Cal.App.4th 1478. We will not repeat the facts of that case here, but will pick up the description of the dispute with the Fresno Superior Court's order of December 5, 2006. That order stated that Smith would be permitted to practice on the staff of Selma Community Hospital for one year and then would have to reapply for privileges as would any other physician practicing there.

In October 2007, Smith reapplied for privileges. In December 2007, Reiber sent Smith a letter telling him that his application could not be accepted because he had not satisfied a 36-month waiting period specified in section 4.5-10 of the Bylaws. In particular, the letter referenced denials of reappointment at Hanford Community Medical Center and the Central Valley General Hospital that occurred in early 2004 and stated those decisions were not final because they were the subject of a still-pending lawsuit. The letter also advised Smith that, after December 19, 2007, he would no longer have privileges to practice at Selma Community Hospital. The letter did not identify any internal procedure by which Smith could challenge the decision that he was not eligible to reapply for hospital privileges.

Proceedings in the Superior Court

Smith disagreed with the way Adventist Health interpreted and applied the 36-month waiting period in section 4.5-10 of the Bylaws. As a result, a week before his privileges at Selma Community Hospital were to end, Smith filed a complaint in Fresno Superior Court against Adventist Health seeking a preliminary and permanent injunction and damages. The complaint alleged causes of action for (1) intentional and unlawful interference with the right to pursue a lawful occupation, (2) intentional interference with prospective business advantage, and (3) unfair competition.

On December 20, 2007, the Fresno Superior Court filed an order denying Smith's ex parte application for a temporary restraining order and an order to show cause regarding the issuance of a preliminary injunction. The order stated the reasons for the denial were (1) Smith's failure to serve his moving papers properly, (2) Smith's failure to exhaust his administrative remedies, and (3) improper venue.

As a result of Adventist Health's successful motion for a change in venue, the case was transferred to Kings Superior Court near the end of March 2008.

The superior court scheduled the hearing on Smith's motion for preliminary injunction for June 3, 2008. Smith's memorandum of points and authorities in support of motion for preliminary injunction chronicled (1) Adventist Health System/West's acquisition of competing area hospitals-Central Valley General Hospital in 1998 and Selma Community Hospital in 2002, (2) Hospital Group's attempt to purchase Smith's clinics for $8 million and its failed attempt to renegotiate the purchase, which included threats to "see [him] in Lompoc[*fn2 ] in six months," (3) Hospital Group's four illegal terminations of his privileges, which Smith alleges were motivated by a desire to eliminate him as competition, (4) Hospital Group's appointment of biased members to the judicial review committee that conducted the hearing concerning the suspension of his privileges at Central Valley General Hospital and Hanford Community Medical Center, (5) Hospital Group's active pursuit of Smith's prosecution by the Medical Board of California (Medical Board), and (6) the 2008 decision of the Medical Board that exonerated Smith of the allegations against him.*fn3 The evidence presented by Smith included declarations, his testimony before the Medical Board, documents from prior litigation and peer review proceedings, correspondence relating to CMStaff's rejection of his reapplication, and the 2008 decision of the Medical Board.

Hospital Group's opposition to the motion for preliminary injunction included as support (1) a September 2006 declaration from Rawson and (2) a copy of the 2003 "Decision and Report of the Judicial Review Committee" of the consolidated medical staff of Hanford Community Medical Center and Central Valley General Hospital. The decision addressed 34 charges of substandard care, 26 instances of abusive behavior, and 10 allegations of falsification of documents and found that only 11 were "not proven." The decision concluded that Smith should not be reappointed. It noted his insistence on treating the peer review inquiry as a sham and stated he "demonstrated an unwillingness or inability to profit from criticism in a collegial way."

The appellate record in the present matter contains no opposition to the preliminary injunction from CMStaff and no joinder by CMStaff in Hospital Group's opposition.

During the June 3, 2008, hearing, the topic of an injunction bond was not addressed. Much of the argument concerned the proper interpretation of the Bylaws and the provision containing the 36-month waiting period.

The superior court took the matter under advisement and filed an order granting the preliminary injunction on June 10, 2008. The court stated the order was needed (1) to restore the status quo to what existed before the dispute regarding the waiting period arose and (2) because Smith's damages would be difficult, if not impossible, to ascertain. The court specifically found that Smith "has a reasonable probability of prevailing on the merits of the dispute between the parties whether the three year waiting period set forth in the consolidated medical staff's bylaws applies to [Smith], or if the bylaws do apply, if the waiting period has expired." The court also weighed the harm to the parties and found that "the balance is in favor of restoring [Smith's] hospital privileges at Selma Community Hospital during the pendency of this lawsuit." The court specifically found that "the preliminary injunction balances the interest of [Smith] in pursuing his occupation and the interest of his patients in selecting a physician, while at the same time protecting the interest of [Adventist Health] in maintaining a high quality of patient care at the hospital."

The final sentence of the order stated that "[n]o bond is ordered to be posted by [Smith]."

Hospital Group and CMStaff each filed a notice of appeal on August 11, 2008.*fn4

CMStaff Bylaws

The dispute over Smith's eligibility to reapply for membership on CMStaff involves the interpretation of certain provisions of the Bylaws. One aspect of the dispute concerns section 4.5-10 of the Bylaws and the meaning of the term "final adverse decision" as it marks the beginning of a 36-month period that must pass before an unsuccessful applicant may reapply. Here, provisions of the Bylaws relevant to this dispute are set forth in the order that they appear in the Bylaws, and the terms "final," "final decision," and "final action" have been italicized.

Section 4.5-8(b) of the Bylaws sets forth the action that may be taken by the governing boards upon a medical executive committee's recommendation that is unfavorable to the applicant. Where the disappointed applicant asserts the procedural rights to a hearing and the appellate review provided in article VII of the Bylaws, "the Governing Boards shall take final action only after the applicant has exhausted all procedural rights as established by these bylaws. After exhaustion of the procedures set forth in Article VII of these bylaws, the board shall make a final decision."

Section 4.5-9 of the Bylaws addresses the next logical step to be taken after a final decision is made-notifying the persons interested. That section is titled "Notice of Final Decision" and provides: "(a) Notice of the final decision shall be given to the chief of staff, the medical executive committee and the credentials committee, the chair of each department concerned, the applicant, and the chief executive officer."

The next provision of the Bylaws is section 4.5-10, which is titled "Reapplication After Adverse Appointment Decision" and provides in full: "An applicant who has received a final adverse decision regarding appointment shall not be eligible to reapply to the medical staff for a period of 36 months. Any such reapplication shall be processed as an initial application, and the applicant shall submit such additional information as may be required to demonstrate that the basis for the earlier adverse action no longer exists."

Section 7.1-4 of the Bylaws, titled "Final Action," states:

"Recommended adverse actions described in Section 7.2 shall become final only after the hearing and appellate rights set forth in these bylaws have either been exhausted or waived, and only upon being adopted as final action by the Governing Boards."

Section 7.5-6 of the Bylaws, titled "Decision," provides: "(a) Except [in cases of modification or remand for further review], within 30 days after the conclusion of the appellate review proceedings, the Governing Boards shall render a final decision and shall affirm the decision of the judicial review committee ...."

Divergent Views about Smith

As background to our discussion of the issues presented on appeal, we note that the parties have painted very different portraits of Smith and his practice. On the one hand, counsel for CMStaff asserted at the superior court hearing that Smith's "behavior and conduct was egregiously poor." Counsel supported this assertion by relying on the 2003 Decision and Report of the Judicial Review Committee of the consolidated medical staff of Hanford Community Medical Center and Central Valley General Hospital. Counsel for Hospital Group described the committee's decision as concluding that "Dr. Smith had committed malpractice on 30 occasions, that he had falsified medical records on a number of occasions, and that he had berated and, quite frankly, terrorized patients and staff for years." Also, counsel for CMStaff asserted the committee determined that the failure of the proposed sale of Smith's clinics to Hospital Group had no effect on the peer review process.*fn5

On the other hand, Smith contends the 2003 decision of the committee was a sham that was pursued to eliminate him as competition after the alternate method of eliminating him-buying out his clinics-fell through. Smith supports this view by referencing, among other things, the conclusions in the 2008 decision of the Medical Board where, at page 60, the administrative law judge wrote:

"[T]hese proceedings proved that Dr. Smith is an excellent, safe, competent and skillful practitioner and a danger to no one, and that his outstanding reputation in his medical community is well earned and fully warranted. The overwhelming weight of the credible and persuasive evidence is that he is a credit to the medical profession generally and to his practice community specifically. He is one of few physicians who are willing to go beyond `lip service' about contributing to the rural poor and underserved small communities in California and has actually done something about it."

The foregoing descriptions illustrate the polarized nature of the litigation between Smith and Adventist Health and their conflicting interpretations of the evidence.

DISCUSSION

I. Requests to Expand the Record*fn6

The parties filed a number of requests asking this court to consider matters that were not part of the record in the superior court. In an order filed October 13, 2009, we denied the pending requests. Later in October, Smith filed a motion to augment the record with declarations from Rawson and Reiber, which were dated after the preliminary injunction had been issued. That motion was denied on December 2, 2009.

An appellate court reviewing a trial court's decision normally will consider only matters that were part of the record when the trial court's decision was filed. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3.) When exceptional circumstances exist that justify deviating from this general principle, an appellate court may take judicial notice of a matter or may exercise the power to take evidence under Code of Civil Procedure section 909. (Vons Companies, Inc., at p. 444, fn. 3.)

In this case, we concluded that the parties did not demonstrate that exceptional circumstances existed, and the various requests and motions were denied on that basis. Hospital Group's request for judicial notice of legislative history of statutes pertaining to bonds and undertakings was granted because the interpretation of those statutes is relevant to this appeal. (See People v. Ledesma (1997) 16 Cal.4th 90, 98 & fn. 4 [judicial notice of legislative materials].)

II. Bond Requirement

A. Contentions

Code of Civil Procedure section 529*fn7 addresses the need for an undertaking when a preliminary injunction is granted. Subdivision (a) of section 529 provides in part:

"On granting an injunction, the court or judge must require an undertaking on the part of the applicant to the effect that the applicant will pay to the party enjoined any damages, not exceeding an amount to be specified, the party may sustain by reason of the injunction, if the court finally decides that the applicant was not entitled to the injunction." (Italics added.)*fn8

In its opening appellate brief, Adventist Health contends that the injunction at issue here is void for lack of a bond. It describes the statutory requirement for an injunction bond as jurisdictional and contends the requirement cannot be waived. Smith disagrees, arguing that Adventist Health waived any objection to the lack of a bond.

B. Background

Smith's memorandum of points and authorities in support of his motion for a preliminary injunction included the following heading: "VI. A BOND IS UNNECESSARY." (Boldface and underscoring omitted.) The single sentence under that heading asserted: "In this instance, a bond is unnecessary because there can be no compensable damages to Defendant Hospital for following the ...


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