State of Cal. v. Pain Management Specialist Medical Group

Filed 12/21/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
STATE OF CALIFORNIA ex rel. 2d Crim. No. B299025
AETNA HEALTH OF CALIFORNIA, (Super. Ct. No. 17CV-0362)
INC. et al., (San Luis Obispo County)
Plaintiffs and Respondents,
v.
PAIN MANAGEMENT SPECIALIST
MEDICAL GROUP et al.,
Defendants and Appellants.
The Legislature created the Insurance Fraud Protection
Act (IFPA) to combat insurance fraud. Here, a private insurance
company contracts with a surgical center to provide medical
services for its insureds. The contract contains an arbitration
clause to settle disputes. The insurance company brings a qui
tam action to recover damages and fees occasioned by the
surgical center’s fraudulent billing practices.
Here we decide the qui tam action is not subject to
arbitration because it is brought on behalf of the state which is
not a party to the contract between the insurance company and
the surgical center.
Pain Management Specialist Medical Group, Cypress
Ambulatory Surgery Center, and Doctors Boris Pilch, Jashvant
Patel, and Marc Wolfsohn (collectively Pain Management) appeal
the trial court’s order denying their petition to compel arbitration
of a qui tam action filed by relators Aetna Health of California,
Inc. and Aetna Health Management, LLC (collectively Aetna) on
behalf of the State of California (State).
This appeal concerns Aetna’s claims of fraudulent
insurance billing practices by Pain Management and its
healthcare billing services in violation of the IFPA. (Ins. Code
§ 1871 et seq.) 1 Pain Management filed a motion to compel
arbitration of Aetna’s qui tam claim as well as Aetna’s asserted
individual claims. The trial court decided that the State is the
real party in interest of the qui tam claim and cannot be
compelled to arbitrate. Pain Management now appeals that
ruling. We apply de novo review and affirm.
FACTUAL AND PROCEDURAL HISTORY 2
On July 28, 2017, Aetna filed a complaint against Pain
Management and other defendants, alleging a qui tam cause of
action on behalf of the People of the State of California as well as
individual claims of fraud, among other causes of action. The
1 All statutory references are to the Insurance Code unless
stated otherwise.
2 We grant Pain Management’s motion to augment the
record on appeal regarding three documents that were designated
as part of the record, but inadvertently omitted.
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complaint alleges that Pain Management performed surgeries at
its in-network-contracted ambulatory surgery centers but billed
Aetna as though the surgeries had been performed at its out-of-
network-non-contracted surgery centers. As a result, Aetna paid
Pain Management higher fees.
The qui tam cause of action alleges that Pain Management
violated IFPA, by creating an unlawful insurance fraud billing
scheme in violation of Penal Code section 550. Aetna served
copies of the sealed complaint on the California Department of
Insurance and the San Luis Obispo County District Attorney.
(§ 1871.7, subd. (e)(2).) Neither agency sought to intervene and,
as a result, the trial court ordered the qui tam complaint
unsealed. Aetna later dismissed the individual causes of action
and proceeded to prosecute only the qui tam cause of action.
On April 2, 2019, Pain Management moved to compel
arbitration of the qui tam cause of action. To support its motion,
Pain Management relied upon arbitration clauses contained in its
contracts with Aetna. Although the clauses differed slightly from
contract to contract, generally they provided for mandatory
binding arbitration administered by the American Arbitration
Association and application of the Federal Arbitration Act, 9
United States Code sections 1-16, to the exclusion of inconsistent
state laws that would yield a different result. Aetna had drafted
the arbitration clauses in the Pain Management contracts and
required that the contracts be executed by its medical providers.
Following written and oral argument by the parties, the
trial court denied the motion to compel arbitration. In a reasoned
and thoughtful written ruling, the court ruled that “the state, as
owner of the IFPA claim, is not a party to the contracts
containing the arbitration provisions.”
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Pain Management appeals and contends that Aetna, not
the State, is the real party in interest who suffered harm by the
alleged fraudulent billing practices.
DISCUSSION
Pain Management asserts that Aetna should be bound by
the arbitration provisions that it drafted and required medical
providers to execute. Pain Management relies upon an
unpublished federal case, Deck v. Miami Jacobs Bus. College Co.
(S.D. Ohio, Jan. 31, 2013, No. 3:12-cv-63) 2013 U.S. Dist. Lexis
14845, holding that a federal False Claims Act claim may be
subject to arbitration.
Pain Management points out that the qui tam cause of
action rests upon the same allegations as Aetna’s individual
causes of action. It adds that Aetna dismissed the individual
causes of action without prejudice after receiving the demand to
arbitrate.
Standard of Review
The party seeking arbitration bears the burden of proving
the existence of an arbitration agreement; the party opposing
arbitration bears the burden of proving any defense to
arbitration. (Pinnacle Museum Tower Assn. v. Pinnacle Market
Development (US), LLC (2012) 55 Cal.4th 223, 236 (Pinnacle).)
Where, as here, there is no evidentiary conflict between the
parties, we review the trial court’s denial of arbitration de novo.
(Ibid.) Moreover, the interpretation and application of a statute
to undisputed facts is a question of law subject to de novo review.
(People ex rel. Allstate Ins. Co. v. Weitzman (2003) 107
Cal.App.4th 534, 543-544 (Weitzman) [statutory interpretation of
IFPA section 1871.7].)
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IFPA Provisions
The Legislature enacted the IFPA to combat insurance
fraud committed against insurers by individuals, organizations,
and companies. (Weitzman, supra, 107 Cal.App.4th 534, 548-
549.) Insurers are the direct victims of the fraud; insureds are
the indirect victims who pay higher premiums due to insurance
fraud. (Id. at p. 562.) “It is in the government’s interest to have
insurers investigate and prosecute [qui tam] proceedings. The
government serves to gain both in terms of fraud prevention and
financially from such actions, especially given limited
investigative and prosecutorial resources available to it.” (Ibid.)
Generally, a qui tam action is one brought pursuant to a
statute allowing a private person to sue as a private attorney
general to recover damages or penalties, all or part of which is
paid to the government. (People ex rel. Strathmann v. Acacia
Research Corp. (2012) 210 Cal.App.4th 487, 491-492
(Strathmann); Weitzman, supra, 107 Cal.App.4th 534, 538.)
Pursuant to the IFPA, a qui tam action is brought on behalf of
the People of the State of California, and the People are the real
party in interest. (§ 1871.7, subd. (e)(1); People ex rel. Alzayat v.
Hebb (2017) 18 Cal.App.5th 801, 830 [“[A] qui tam lawsuit
vindicates an injury to the government, not an injury to the
relator”]; Strathmann, at p. 492.)
Section 1871.7, subdivision (e)(1) of the IFPA expressly
authorizes any interested person to bring a qui tam action to
recover damages and penalties for fraudulent insurance claims
both for the person and the State. (Strathmann, supra, 210
Cal.App.4th 487, 500.) Section 1871.7, subdivision (e)(1)
provides: “Any interested persons, including an insurer, may
bring a civil action for a violation of this section for the person
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and for the State of California. The action shall be brought in the
name of the state.”
The person bringing the qui tam action, the relator, stands
in the shoes of the People of the State of California, who are
deemed to be the real party in interest. (Strathmann, supra, 210
Cal.App.4th 487, 501.) The relator in a section 1871.7 qui tam
action does not personally recover damages, but, if successful,
receives a substantial percentage of the recovery as a bounty.
(§ 1871.7, subd. (g); Strathmann, at p. 500.)
The procedural requirements of IFPA reflect that the State
retains primacy of a qui tam action. The State can dismiss the
action, intervene in the action, or permit the relator to continue.
(§ 1871.7, subds. (e)(1), (f)(3).) IFPA also permits the State to
oppose any settlement or bounty. (§ 1871.7, subd. (g)(2)(A).)
Here the State cannot be compelled to arbitrate this qui
tam IFPA action because it is not a signatory to the contracts.
(Pinnacle, supra, 55 Cal.4th 223, 240.) “[I]t is a cardinal
principle that arbitration under the FAA ‘is a matter of consent,
not coercion.’ ” (Ibid., citing Volt Info. Sciences v. Leland
Stanford Jr. U. (1989) 489 U.S. 468, 478 [103 L.Ed.2d 488].)
Thus, a party cannot be required to submit to arbitration a
dispute that he has not agreed to submit. (Ibid.)
In California, general principles of contract law determine
whether the parties have a binding agreement to arbitrate.
(Pinnacle, supra, 55 Cal.4th 223, 236.) “In determining the rights
of parties to enforce an arbitration agreement within the FAA’s
scope, courts apply state contract law while giving due regard to
the federal policy favoring arbitration.” (Ibid.)
In the related context of the California Private Attorney
General Act, Iskanian v. CLS Transportation Los Angeles, LLC
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(2014) 59 Cal.4th 348, 386-387, concluded that a private attorney
general claim is not a dispute between an employee and an
employer, but is a dispute between the employer and the State.
A private attorney general claim is a type of qui tam action. (Id.,
at p. 382.) The government entity on whose behalf the plaintiff
files suit is always the real party in interest in the suit. (Ibid.;
Tanguilig v. Bloomingdale’s, Inc. (2016) 5 Cal.App.5th 665, 671.)
Thus, the State is the owner of the qui tam action, the real party
in interest, and cannot be compelled to arbitrate without its
consent. (Correia v. NB Baker Electric, Inc. (2019) 32
Cal.App.5th 602, 622.)
The reasoning of Deck v. Miami Jacobs Bus. College Co.,
supra, 2013 U.S. Dist. Lexis 14845, is not persuasive. Deck
concerned the federal False Claims Act, a different statutory
scheme from the IFPA in its purpose, scope of liability, victims,
and recoveries. (Weitzman, supra, 107 Cal.App.4th 534, 561 [the
only direct victim of the federal False Claims Act is the
government].) “The purpose of section 1871.7, on the other hand,
is to prevent and remedy . . . insurance fraud. Insurers, not the
state government, are the direct victims of the fraud. Insureds
are the indirect victims who pay higher premiums due to the
prevalence of insurance fraud. . . . The government does not
necessarily recover funds lost to it because of a fraud perpetrated
on it.” (Id. at p. 562.)
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The order denying the motion to compel arbitration is
affirmed. Costs are awarded to respondents.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
PERREN, J.
TANGEMAN, J.
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Ginger E. Garrett, Judge
Superior Court County of San Luis Obispo
______________________________
Buchalter, Andrew H. Selesnick, Robert M. Dato and
Christopher L. Dacus for Defendants and Appellants.
Kennaday Leavitt, Curtis S. Leavitt and Lance M. Martin
for Plaintiffs and Respondents.
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