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Yoo v. Shewry

June 29, 2010


APPEAL from an order of the Superior Court of Los Angeles County, David P. Yaffe, Judge. Reversed. (Los Angeles County Super. Ct. No. BS113310).

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



Defendant Sandra Shewry, the former Director of the California Department of Health Care Services (the Department or DHCS), appeals from the order granting the petition for writ of mandate filed by petitioners Chang Ho Yoo (Yoo), a pharmacist doing business as PCH Medical Pharmacy (PCH) in Long Beach California, and CNN PharmaCare, Inc. (CNN) of which Yoo is the majority owner. The question presented for resolution is as follows: When the Department suspects fraud and willful misrepresentation on the part of a Medi-Cal provider and withholds Medi-Cal payments from that provider pursuant to Welfare and Institutions Code*fn1 section 14107.11, is the Department required to pay interest on the amount of withheld payments that are later disbursed to the provider after the Department has finished its investigation, where the Department delays unreasonably in making the disbursement? In granting the petition, the court answered this question in the affirmative, concluding that the payment of interest was compelled by Civil Code section 3287.

On appeal, the Department contends that section 14107.11 does not require or permit the payment of interest on Medi-Cal payments that are temporarily withheld and Civil Code section 3287 is inapplicable in this case. We agree and reverse the order granting petitioner's writ of mandate.


In a letter dated April 6, 2005, the Department advised Yoo that effective April 1, 2005, the Medi-Cal program was temporarily withholding 100 percent of PCH's Medi-Cal payments under provider number PHA445270 pursuant to section 14107.11 and Title 42 of the Code of Federal Regulations, section 455.23, in that the Department suspected PCH of committing fraud or willful misrepresentation against the Medi-Cal program.

CNN owned and operated Roxbury Pharmacy (Roxbury) from October 2003 to May 2006. In a letter dated June 9, 2006, the Department advised Yoo that effective that date it was temporarily withholding 100 percent of Roxbury's Medi-Cal payments under provider number PHA355460 because of suspected fraud and willful misrepresentation. The Department further advised Yoo that effective June 24, the Department was temporarily suspending and deactivating his Medi-Cal provider number PHA355460 in accordance with section 14043.36, subdivision (a), in that he was "under investigation for fraud, abuse or willful misrepresentation."

In August 2007, the Office of the State Controller (State Controller), on behalf of the Department, completed its audit of PCH for the period May 1, 2003 through April 30, 2006. It determined that PCH could not substantiate $1,069,982 of its claims. On October 4, 2007, the State Controller sent Yoo's counsel a letter regarding PCH's final audit results. The State Controller advised counsel that there had been "an overpayment of $1,069,982" and that the State Controller would send a report to the Department, detailing its findings. The Department, in turn, would send a demand for repayment to Yoo. The State Controller further advised counsel of Yoo's right to request a hearing within 30 calendar days of receiving the audit or exam findings, if Yoo disputed any of the findings.

In a letter dated March 12, 2008, the Department advised Yoo's counsel that with regard to PCH, it was "bringing closure to the temporary withhold on your client's Medi-Cal practice. The State Controller's Office has not yet issued an audit demand, but has estimated that the demand will be approximately $1,069,982.00. Please be advised that this amount is tentative and subject to change; the demand when issued may be higher or lower. [¶] The funds held as a result of the withhold amount to approximately $4,536,711.00. DHCS will retain in the withhold account an amount equal to the tentative liability of $1,069,982.00. The remaining funds will be returned to your client at the pay to address on record with the Provider Enrollment Division. [¶] Please allow approximately ten to 15 working days for the processing and mailing of the funds. . . ."

In the meantime, on February 15, 2008, petitioners filed a petition for writ of mandate pursuant to Code of Civil Procedure section 1085.*fn2 Therein, petitioners challenged the Department's practice "of refusing to pay interest on Medi-Cal payments withheld, in many cases for years, from providers of Medi-Cal services even though [it] knows or should know such payments are properly owing the providers." Petitioners asked the trial court to invalidate the challenged policy and practice and to order the Department "to comply with the applicable provisions of the law and to pay interest to providers on such improperly withheld funds." Petitioners explained that their lawsuit did not challenge the Department's "authority to withhold temporarily Medi-Cal payments from providers in the first place." Rather, it challenged only the Department's "unauthorized, arbitrary, but steadfast refusal to pay interest on providers' Medi-Cal payments once [the Department] knows (or should know) the payments are no longer the proper subject of a continuing withhold."

On March 14, 2008, the Department demurred to the petition for writ of mandate. It argued that petitioners failed to state a cause of action. Specifically, it argued that section 14107.11 does not require or authorize the Department to pay interest on withheld Medi-Cal payments, and section 14171.6 is inapplicable to withheld payments.

On June 10, 2008, the trial court issued a tentative decision and held a hearing on the petition for writ of mandate. Its minute order states: "The court does not agree with the position taken by either party. The petitioner's position, that an interest recovery provision contained in . . . section 14171[, subdivision] (g) is to be written into . . . section 14107.11, is without merit. The legislature did not intend to do so or it would have done so. The respondent's contention, that a statute that is silent as to the recovery of interest is to be read as if the statute prohibits the recovery of interest, is also without merit for the same reason.

"A more probable reading of the intention of the legislature and a fairer result in this case can be achieved by holding that California's general statute on the recovery of interest, Civil Code section 3287[, subdivision] (a), is applicable to the claim alleged in the petition. Whether that statute will allow any interest on petitioner's claim in this case, and if so, from what date, will depend upon facts that are not alleged or proved by either party. The court has no opinion as to the ultimate outcome of this case if Civil Code section 3287[, subdivision] (a) applies.

"The court cannot see any reason why the application of Civil Code section 3287[, subdivision] (a) will frustrate or defeat any federal policy or regulation, or why it will be contrary to the intention of the legislature or a threat to any legitimate interest of the Department . . . ." The court invited the parties to file supplemental briefs addressing its tentative decision and continued the matter.

On August 4, 2008, after receipt of the parties' supplemental briefs, the court again held a hearing at which it observed: "I think whether or not the state held the money for an unreasonable time is a question of fact, and I think in order to make a finding of a date, I'm going to need evidence. I do not think that I can decide the case as a matter of law . . . ." The court asked the petitioners to provide additional evidence by way of declarations establishing "an evidentiary basis to fix a time upon which interest should begin to run." In response to a query by counsel for the Department, the court held that petitioners are entitled to interest under Civil Code section 3287 "if they can prove the right to interest from a particular day."

The court's minute order of August 4, 2008 further reflects its determinations up to that point: "The court has considered the supplemental briefs submitted by the parties on the issue of whether petitioner may be awarded interest by this court under Civil Code section 3287[, subdivision] (a). Once again the court does not agree with the position taken by either party. The State's contention that the 3.5 million dollars that it withheld from the provider and did not return until three years later did not cause the provider to incur 'damages' as that term is used in Civil Code section 3287[, subdivision] (a) is without merit. The loss of use of that sum for the three years that it was withheld constitutes such damages, and the voluntary return of the money without interest three years after it was taken does not absolve the State from liability for such damages. The State had a statutory right to withhold those funds TEMPORARILY. Temporary does not mean permanent and the right to temporarily hold the money does not mean that the State can hold it for as long as it pleases. The right to make a temporary withholding implies a duty to pay the money back and the fact that the duration of the temporary withholding is not fixed by statute or regulation means that the State can withhold it for only a reasonable period of time. When the State overpays a provider, it is entitled to recover interest on the overpayment under Civil Code section 3287. [Citation.] The withholding of payment from a provider for an unreasonable period of time entitles the provider to interest under the same statute, but only to the extent that the withholding was unreasonable.

"Although interest under Civil Code section 3287[, subdivision] (a) cannot be awarded administratively, it may be awarded by a court in a mandamus proceeding provided the court finds that the State wrongfully withheld the 3.5 million dollars from the provider. In order to recover such interest, however, the provider must show: '(1) An underlying monetary obligation, (2) damages which are certain or capable of being made certain by calculation, and (3) a right to recovery that vests on a particular day.' [Citation.] Petitioner's contention, that it is entitled to recover such interest as a matter of law, and without regard to the reasonableness of the period of withholding, is also without merit. The provider must show a right to recovery that vests on a particular day. The date upon which the funds were withheld does not establish the date upon which they are to be returned because the statutory scheme is obviously intended to provide the State with, 'a reasonable time to process each legitimate claim.' [Citation.]"

The court again continued the hearing on the merits of the petition "to permit petitioner to submit evidence by declarations under penalty of perjury to show that its right to recover the 3.5 million dollars vested on a particular day, if petitioner is able to do so." The court further stated that petitioner "is also entitled to pursue discovery to obtain ...

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