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Julio Garcia Aguilar et al v. Marc R. Goldstein et al

July 19, 2012


APPEAL from an order of the Superior Court for Los Angeles County, Jane L. Johnson, Judge. Affirmed. (Los Angeles County Super. Ct. No. BC443083)

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


Defendants and appellants Marc R. Goldstein, Lawrence Weiss, M.D., Vincent Jensen, and Terrence Pyle (collectively, defendants) appeal from an order denying their special motion to strike under Code of Civil Procedure*fn1 section 425.16. The trial court found that section 425.16 did not apply because the complaint did not arise from acts in furtherance of defendants' right of petition or free speech. We agree, and affirm the order denying defendants' motion.


Plaintiffs and respondents Julio Garcia Aguilar, M.D., Joanne E. Mortimer, M.D., and Michael W. Lew, M.D. (collectively, plaintiffs) are physicians and shareholders of California Cancer Specialists Medical Group, Inc., a professional corporation doing business as City of Hope Medical Group (the Group). The Group is owned by physicians who, along with other physicians and health care professionals the Group employs, provided at least 90 percent of the medical staff at City of Hope National Medical Center (the Hospital) under a professional medical service agreement (the PSMA).

For the first 20 years of the Group's and the Hospital's relationship, almost all of the managerial and administrative duties relating to the Group were performed by staff employed by the Hospital. In 1999, the Group hired its own management and administrative staff. A management services organization was established -- California Oncology Hematology Management Group, Inc. (the MSO), which is alleged to be wholly owned by the Group (although there is evidence that it is owned by only some of the shareholders of the Group) -- to provide billing and collections services and other administrative support. Defendants Goldstein, Jensen, and Pyle are, respectively, the Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer of both the Group and the MSO. Defendant Weiss, who is a physician and shareholder of the Group, is President and Chair of the Board of Directors of the Group, and is on the Board of Directors of the MSO.

Just over a year before the expiration of the PMSA in January 2011, the Hospital and the Group, through their representatives, began discussions regarding the continuation of their relationship after the expiration of the PMSA as well as the implementation of the newly-enacted health care reform law. In December 2009, the Hospital proposed to establish a foundation that would purchase all of the assets of the Group, including the MSO and outpatient clinics owned by the Group, and would be responsible for billing and collecting the clinical revenues of the Group; the foundation would then enter into a professional services sub-agreement with the Group to compensate the physicians for clinical and other services. In January 2010, the Group, through its representatives, offered an alternative proposal that provided for a joint governance board and joint control and ownership of the MSO and clinics. The Hospital rejected the Group's proposal in early February 2010. The Hospital also told the Group that it did not intend to enter into a new PMSA with the Group and that if the Group did not agree on key terms of a proposal utilizing a foundation by the end of February, the Hospital would implement a foundation without the Group.

Negotiations continued over the next two months. Although the Hospital changed its initial position and agreed to some participation by the Group in the board of the proposed foundation, the Hospital insisted on retaining ultimate control over the foundation and its operations; defendants insisted that the Group have at least co-equal control, which defendants asserted was required under California law. While these negotiations were going on, the Hospital's Chief Medical Officer, Dr. Alexandra Levine, was communicating with the Group's physicians, soliciting them to work for the proposed foundation and/or a medical services provider group she had formed. In March 2010, the Group's Board of Directors adopted a resolution directing all employees to stop communicating with representatives of the Hospital regarding the proposed foundation; the resolution also established a subcommittee to determine the Group's legal strategies.

By mid-April 2010, the Group's Board of Directors concluded that "the core issues of [the Group's] negotiating position (self-governance, long-term contract, and infrastructure)" needed to be reinforced, and it approved a motion to take legal action, authorizing the litigation subcommittee to determine the appropriate time to take that action. The litigation subcommittee made that determination, and a lawsuit was filed on May 3, 2010 on behalf of the Group against the Hospital and Dr. Levine. That lawsuit (the Hospital lawsuit) alleged that the Hospital and its agents (including Levine) were attempting to force the physicians employed by the Group to participate in an "illegal scheme" that would result in the Hospital controlling the physicians and the practice of medicine in violation of California law prohibiting the corporate practice of medicine.

Three months later, plaintiffs filed the instant class action lawsuit on behalf of themselves and all shareholders of the Group (other than the named defendants). Plaintiffs allege that Goldstein, Jensen, and Pyle (collectively, the Management defendants), who are not shareholders of the Group, have failed to disclose financial information to the shareholders, including the amount of money they receive from the Group and the MSO. They allege that the Management defendants acted in their own self interest rather than in the interest of the shareholders by rejecting the Hospital's foundation proposal, refusing to continue to negotiate, and "entrench[ing] themselves by filing suit against the Hospital." Plaintiffs contend that the Hospital's proposal would have benefitted the shareholders by allowing the shareholders to obtain the maximum value of their shares (through the foundation's purchase of the assets of the Group) and allowing the physicians to maintain their positions with the Hospital, but it would not have allowed defendants to keep their jobs or their power to act without full disclosure, thus presenting a conflict of interest on the part of defendants. The complaint alleges that defendants breached their fiduciary duty by failing to negotiate in good faith on the Group's behalf, failing to disclose the Group's financial information to the shareholders, and failing to take steps to maximize the amounts to be paid to and for the benefit of the shareholders.

Defendants moved to strike the complaint under section 425.16. They argued that the complaint arises out of protected activity because plaintiffs' claim is based upon the filing of and conduct in anticipation of the Hospital lawsuit, as well as negotiations involving a matter of public interest, i.e., "[t]he plight of the . . . Group and its relationship with the [Hospital]" and the prohibition of the practice of medicine by a corporation. They further argued that plaintiffs cannot establish a probability they will prevail.

In opposing the motion, plaintiffs elaborated upon the basis for their claim. First, plaintiffs noted that they had recently received information in response to a shareholder records inspection request that indicated that the MSO is not a wholly owned subsidiary of the Group, as had been represented to them by defendants. Instead, the MSO is a separate entity owned by unidentified individuals, some of whom may also be shareholders of the Group. Plaintiffs asserted that defendants' failure to disclose this fact to the shareholders of the Group (or misleading the shareholders as to ownership of the MSO) was significant because the ownership and role of the MSO was an important point of contention in the negotiations with the Hospital, and defendants had a conflict of interest in representing the Group as well as the MSO. Second, plaintiffs asserted that defendants presented to shareholders incomplete and misleading information regarding the Hospital's proposal, which led the shareholders to vote to reject the proposal. They contended that defendants continued to withhold information and misrepresent other aspects of the negotiations to obtain shareholder approval of their actions, and that defendants effectively terminated the negotiations by filing the Hospital lawsuit.

Plaintiffs explained that the basis for their single claim of breach of fiduciary duty is "the manner in which [defendants] conducted the negotiations, including failing to disclos[e] their conflicts of interest, misrepresentations and omissions of material information, gross negligence, and fail[ing] to maximize shareholder value once deciding to sell the Group." They argued that it does not arise from defendants' right to petition because (1) the references in the complaint to the Hospital lawsuit are incidental to the gravamen of the complaint, which is that defendants breached their fiduciary duty through their conduct leading up to the termination of the negotiations; and (2) defendants are not parties to the Hospital lawsuit, since it was filed on behalf of the Group, and therefore plaintiffs' claim has nothing to do with defendants' right to petition. Plaintiffs argued that their claim also does not arise from defendants' conduct in furtherance of their right of free speech because the conduct at issue involved private negotiations regarding a business matter rather than a debate on an issue of public interest. Therefore, plaintiffs contended that section 425.16 did not apply.*fn2

The trial court agreed. The court concluded that the allegations in the complaint regarding the filing of the Hospital lawsuit were "'merely incidental' to the allegations that Defendants scuttled the negotiations in order to retain 'control . . . believed to provide substantial undisclosed financial benefits to the Management Defendants.'" The court also rejected defendants' assertion that the conduct alleged in the complaint was conduct in anticipation of the Hospital lawsuit, finding that it was instead conduct in an attempt to reach a new contract. Finally, the court found that plaintiffs do not seek to hold defendants liable for their speech concerning an issue of public importance, but rather for acts such as contract negotiations and business decisions. The ...

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