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Durell v. Sharp Healthcare

April 19, 2010


APPEAL from a judgment of the Superior Court of San Diego County, Luis R. Vargas, Judge. Affirmed. (Super. Ct. No. 37-2007-00064220-CU-BT-CTL).

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


This is a putative class action by Daniel Durell against Sharp Healthcare (Sharp) for violation of the unfair competition act (UCL) (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Durell's theory is that Sharp engaged in deceptive and unfair practices by billing uninsured patients its full standardized rates for services, when it substantially discounts those rates for patients covered by Medicare or private insurance. Durell appeals a judgment of dismissal entered after the court sustained without leave to amend Sharp's demurrer to his second amended complaint (SAC).

In In re Tobacco II Cases (2009) 46 Cal.4th 298 (Tobacco II), the California Supreme Court recently held that after the voters' approval of Proposition 64 (Gen. Elec., Nov. 2, 2004), a consumer suing a business under the "fraud" prong of the UCL must show actual reliance on the alleged misrepresentation, rather than a mere factual nexus between the business's conduct and the consumer's injury. (Tobacco II, at p. 326.) In this case we conclude that to have standing to bring a claim under the "unlawful" prong of the UCL, in which the predicate unlawful conduct is based on misrepresentations, as here, the reasoning of Tobacco II is equally applicable and actual reliance is an element of the claim. For this and other reasons addressed below we affirm the judgment.


Durell was taken to the emergency room of Sharp Grossmont Hospital and treated five times between October 2000 and May 2005, four times with a severe asthma condition and once with severe foot pain. Durell was uninsured at those times. Sharp requires its patients to sign an "Agreement for Services at a Sharp Facility" (hereafter Agreement for Services), which obligates a patient to pay Sharp's "usual and customary charges for . . . services." Sharp billed Durell a total of $21,088.12 for his five hospital visits. Durell did not pay his bills and Sharp referred them for collection.*fn1

In March 2007 Durell filed a proposed class action against Sharp. Sharp demurred to the complaint, and in November 2007 he filed a first amended complaint (FAC). The FAC included causes of action for (1) violation of the UCL; (2) violation of the CLRA; (3) unjust enrichment; (4) breach of contract; (5) and breach of the duty of good faith and fair dealing. The court sustained Sharp's demurrer to the FAC and granted Durell leave to amend.

In April 2008 Durell filed his SAC, which is the subject of this appeal. The SAC includes the same five causes of action as the FAC.*fn2 The SAC alleges that hospitals, including Sharp Grossmont Hospital, "maintain documents called Chargemasters, which are spreadsheets that list the gross charge for each product and service provided by the hospital. These gross charges, however, rarely bear any relation to the hospital's costs for providing treatment and differ from the actual, lower charges assessed against the overwhelming majority of patients who participate in Medicare or private insurance programs." The "Chargemaster rates often form the starting point for negotiations with insurance companies and managed care organizations to determine reasonable (and lower) reimbursements rates, or for determining Medicare . . . payments to hospitals. . . . Significantly, uninsured patients . . . are the only category of payors who are actually obligated to pay the excessive gross Chargemaster rates." (Original italics.)

Sharp allegedly charged uninsured patients "on average, 412% of the Medicare reimbursement rates for non-outlier reimbursements (fn. omitted), compared with the national average of 305% for all hospitals." Sharp charged Durell its chargemaster rates, which were "excessive, unreasonable, and unconscionable." Additionally, the SAC alleges "Sharp regularly sends its patients to collections when they are unable to pay," and Durell "has been the victim of Sharp's aggressive, uncaring and mean-spirited collection efforts." The SAC claims damages consisting of "payments made on the Sharp bills, fees and interest, an adverse credit rating and lower credit score, [and] other costs and expenses, including postage, mileage, and telephone expenses and being prevented from obtaining credit."

Sharp demurred to the SAC. After a hearing on July 25, 2008, the court took the matter under submission. On August 21, 2008, the court issued an order granting the demurrer on all causes of action without leave to amend. The court determined the UCL claim fails because the SAC does not sufficiently allege Durell's injury in fact or causation, that he relied on Sharp's alleged misrepresentation; the CLRA claim also fails for lack of causation allegations; the unjust enrichment claim fails because the SAC does not allege he paid Sharp more than the reasonable value of services he received; and the contract claims fail because the SAC does not sufficiently allege Durell performed his contract obligations or that he had an excuse for nonperformance.

Durell moved for reconsideration of the ruling and submitted a proposed third amended complaint (TAC). The proposed TAC, which is dated September 8, 2008, alleges Durell "has expended money in the sum of $1,522.60 due to [Sharp's] acts of unfair competition." Durell's attorney filed a supporting declaration, which states that since the date of the court's demurrer ruling "Durell paid to Sharp on his account, the amount of $1,522.60." In its opposition, Sharp submitted evidence that Durell had not paid Sharp anything. Durell's counsel admitted his error, and submitted a declaration by Durell that stated on September 29, 2008, "I paid . . . my Sharp bill that was originally $1522 but with 'collection' fees ballooned to $2,098.85."

The court granted reconsideration, but reaffirmed its ruling on the demurrer. The court determined the " 'new fact' of . . . Durell's payment to Sharp does not cure the deficiencies in [his] [SAC]." Judgment was entered in Sharp's favor on January 5, 2009.


I. Standard of Review

"A demurrer tests the sufficiency of a complaint as a matter of law." (City of Chula Vista v. County of San Diego (1994) 23 Cal.App.4th 1713, 1718.) In reviewing the propriety of the sustaining of a demurrer, the "court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed 'if any one of the several grounds of demurrer is well taken. [Citations.]' [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any possible legal theory. [Citation.] And it is an abuse of discretion to sustain a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect identified by the defendant can be cured by amendment." (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

We review the trial court's ruling independently. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) We uphold the court's ruling "on any sufficient ground, whether relied on by the court below or not." (Wheeler v. County of San Bernardino (1978) 76 Cal.App.3d 841, 846, fn. 3.)

II. UCL Cause of Action

A. Overview of Law

"The purpose of the UCL [citation] 'is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services. [Citation.]' " (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1470.) "A UCL action is equitable in nature; damages cannot be recovered. [Citation.] . . . [U]nder the UCL, '[p]revailing plaintiffs are generally limited to injunctive relief and restitution.' " (Korea Supply So. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1144.)

The UCL does not proscribe specific acts, but broadly prohibits "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . ." (Bus. & Prof. Code, ยง 17200.) "The scope of the UCL is quite broad. [Citations.] Because the statute is framed in the disjunctive, a business practice need only meet one of the three criteria to be considered unfair competition." (McKell v. Washington Mutual, Inc., supra, 142 Cal.App.4th at p. 1471.) " 'Therefore, an act or practice is "unfair competition" under the UCL if it is forbidden by law ...

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