Healthcare Reimbursement Advisors v. Cedars-Sinai Medical Center CA2/3

Filed 2/22/16 Healthcare Reimbursement Advisors v. Cedars-Sinai Medical Center CA2/3

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for

publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication

or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION THREE

HEALTHCARE REIMBURSEMENT B260680

ADVISORS, INC.,

(Los Angeles County

Plaintiff and Appellant, Super. Ct. No. BC532067)

v.

CEDARS-SINAI MEDICAL CENTER,

INC.,

Defendant and Respondent.

APPEAL from judgment of the Superior Court of Los Angeles County,

Barbara A. Meiers, Judge. Affirmed.

Law Offices of Barry K. Rothman, Barry K. Rothman and Lawrence M. Boesch

for Plaintiff and Appellant.

McDermott Will & Emery, Russell Hayman, Charles E. Weir and Kate M.

Hammond for Defendant and Respondent.

_____________________

INTRODUCTION

Plaintiff Healthcare Reimbursement Advisors, Inc. (HRA) appeals from a

judgment of dismissal entered in favor of Defendant Cedars-Sinai Medical Center, Inc.

(Cedars-Sinai) after the trial court sustained Cedars-Sinai’s demurrer to HRA’s second

amended complaint without leave to amend. We affirm.

HRA describes itself as a for-profit consulting firm that “helps hospitals and other

healthcare providers maximize reimbursement revenue from Medicare and Medicaid by

helping them navigate the complex bureaucratic web of billing procedures.” Cedars-

Sinai is a nonprofit hospital and medical center with facilities in Los Angeles, California.

Prior to HRA delivering a presentation to Cedars-Sinai regarding a plan to increase its

Medicare reimbursements, HRA alleges Cedars-Sinai’s representatives orally agreed that

“[i]f Cedars-Sinai were to adopt, implement, use or employ [a] plan for seeking

[increased reimbursements] using the modified method proposed by HRA, it would do so

through [HRA] exclusively.” In its demurrer to HRA’s sole claim for declaratory relief,

Cedars-Sinai argued the alleged oral agreement, which lacked terms concerning the price,

duration and scope of HRA’s proposed services, was too vague and indefinite to support

a claim for declaratory relief. We agree, and affirm on this basis.

FACTUAL BACKGROUND

Because this matter comes to us on demurrer, our statement of facts is based upon

the allegations of Plaintiff’s operative second amended complaint. (Stevenson v.

Superior Court (1997) 16 Cal.4th 880, 885.) “[W]e treat as true all material facts

properly pleaded, but not contentions, deductions or conclusions of fact or law.”

(Freeman v. San Diego Assn. of Realtors (1999) 77 Cal.App.4th 171, 178, fn. 3.)

Medicare is a federal health insurance program that reimburses hospitals for

qualified medical services delivered to senior citizens and certain disabled persons. HRA

alleges it has developed a “modified method” to qualify hospitals like Cedars-Sinai for

special classification statuses under Medicare and thereby increase such hospitals’

reimbursement payments. The modified method involves the submission of “various

applications . . . to regulators in a particular way, at particular times, and in a particular

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order” so as to qualify the hospital for a special status classification in cases where the

hospital would otherwise not meet the “normal criteria to qualify for the status.” HRA is

one of “only a handful of [reimbursement consulting firms] [with] knowledge of the

modified method of attaining special status.” It has always taken “reasonable steps” to

maintain the modified method’s confidentiality, and its “enforced official policy” is to

refrain from revealing its “methods, research, processes and other strategies to any

prospective customer . . . without first gaining assurances of confidentiality,

nondisclosure and forebearance [sic].”

According to the operative second amended complaint, “[b]eginning in or about

mid-2010, prior to meeting with Cedars-Sinai, HRA reviewed Cedars-Sinai’s cost reports

and spent dozens of hours researching potential Medicare special status for Cedars-

Sinai.” Thereafter, HRA began advertising its consulting services to Cedars-Sinai in an

effort to obtain the hospital as a client. Cedars-Sinai agreed to a meeting in June 2011.

In advance of the meeting, HRA created a “20-slide visual presentation and a bound,

137-page special status plan” for Cedars-Sinai.

Before disclosing the presentation materials, HRA asked Cedars-Sinai to enter a

written nondisclosure agreement and to “bind [Cedars-Sinai] to hiring [HRA] for the

work if it decided to try the modified method for special status in its future applications

for Medicare reimbursements.” Cedars-Sinai declined to enter into a written agreement.

Its reimbursement manager nevertheless assured HRA, “ ‘We’re ethical. We will keep

your plan confidential. If we decide to do it, we’ll do it with you.’ ” HRA maintains this

exchange “formed an oral agreement” pursuant to which HRA agreed to “make the

Presentation” and Cedars-Sinai agreed “a) to keep the Presentation confidential among its

officers and managers exclusively, b) to refrain from disclosing it or any part of it to

anyone other than a Cedars-Sinai officer or manager . . . , and c) to forebear from hiring

any other company but HRA to represent and advise it on the certain modified method

for Medicare special status that HRA was presenting.”

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In reliance on Cedars-Sinai’s assurances, HRA proceeded with its presentation on

the modified method. The complaint highlights a “slide in the visual part of the

Presentation,” which HRA alleges “spelled out” the terms of the parties’ agreement

“specifically and in detail.” That slide, which HRA attached as an exhibit to its

complaint, states in relevant part: “Cedars-Sinai is under no obligation to implement the

strategies that we discuss today. [¶] If Cedars does decide to proceed with these

strategies, it is expected that it will retain [HRA] to provide the professional services

necessary for implementation pursuant to the terms of our CONSULTING

AGREEMENT.”

During the presentation, Cedars-Sinai’s director of budget and reimbursement

reiterated the earlier assurances to “keep the information confidential and to engage HRA

as a consultant if [Cedars-Sinai] ever were to use their method for seeking Medicare

reimbursements.” Cedars-Sinai’s vice president of finance heard these oral assurances

and allowed the presentation to continue without objection or reservation.

The presentation outlined “three options to increase Medicare revenues” for

Cedars-Sinai. HRA “proposed to guide Cedars-Sinai through the process of applying for

special status through three (3) applications for three different statuses, in a set and timely

manner, including balancing the sequence and timing of each approval.” This process

“implied filing with the correct Medicare agency, in the correct format, with the correct

document information, in certain time frames and with matching criteria.”

After the presentation, a Cedars-Sinai executive indicated he was interested in

pursuing one of HRA’s modified methods. The executive said Cedars-Sinai would

evaluate the three methods presented and inform HRA of its decision. In reliance on

Cedars-Sinai’s alleged “representations or promises” concerning confidentiality and

forbearance, HRA gave Cedars-Sinai a copy of the “137-page special status plan” to

review.

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On July 5, 2011, Cedars-Sinai’s Reimbursement Manager informed HRA that the

hospital had “decided not to implement any of HRA’s modified methods for ‘political

and public’ reasons.” In response, HRA asked Cedars-Sinai to return the written special

status plan. Cedars-Sinai returned the materials.

In May 2013, HRA’s president learned that Cedars-Sinai had “entered into an

agreement with a rival consulting firm to implement the modified method of seeking

special status in their applications for Medicare reimbursement that HRA had presented

in its Presentation.” In response to inquiries from HRA, Cedars-Sinai stated that it was

“not proceeding with a reclassification project at this time” and denied that it had entered

into the alleged oral confidentiality, nondisclosure and forbearance agreement with HRA.

With respect to the June 2011 meeting, Cedars-Sinai added that “[t]he general discussion

between Cedars-Sinai and HRA did not involve [the] provision of any unique proprietary

information”; the discussion related to “a published federal regulation well known to the

hospital industry”; there were “many healthcare consultants and healthcare attorneys

[who] are familiar with and provide consulting/advisement services related to hospital

reclassification under this regulation”; and “[a]s early as May of 2011 (prior to meeting

with HRA), Cedars-Sinai had already been in discussions about the reclassification

matter with other consultants.”

PROCEDURAL HISTORY

HRA filed the instant action on January 2, 2014. Its initial complaint and

subsequent first and second amended complaints all assert a single cause of action for

declaratory relief.

Cedars-Sinai responded to each complaint with a general demurrer. In its

demurrers to the initial and first amended complaints, Cedars-Sinai argued there was no

present controversy concerning the confidentiality and nondisclosure aspects of the

alleged agreement because the hospital had no intention of disclosing HRA’s confidential

information. In that regard, Cedars-Sinai pointed to the admitted fact that it had returned

HRA’s presentation materials upon request. As for the forbearance aspect, Cedars-Sinai

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argued the terms of the supposed agreement were too indefinite to support a declaratory

relief claim and, at most, HRA had alleged an unenforceable agreement to agree.

The trial court sustained Cedars-Sinai’s demurrers to the initial and first amended

complaint with leave to amend. In each instance, the court concluded the complaint had

not set forth the essential terms of the purported agreement, much less the rights and

obligations HRA sought to have declared under the agreement. Both orders granting

leave to amend directed HRA to specify “the precise terms” of the parties’ alleged

agreement and the “intended or agreed upon meaning” that HRA relied upon in seeking

declaratory relief.

HRA’s operative second amended complaint sought to address the court’s

concerns by quoting the statements made by Cedars-Sinai’s representatives at the June

2011 meeting and emphasizing that the alleged controversy principally related to the

forbearance aspect of the purported agreement. HRA asserted a “judicial declaration is

necessary and appropriate . . . in that [Cedars-Sinai] contends . . . that obliging itself to

the terms of confidentiality and nondisclosure alone would fulfill its obligations . . .

[while] [HRA] contends to the contrary that defendant Cedars-Sinai’s forebearance [sic]

from hiring any other consultant to use the modified methods in the Presentation was

integral to their agreement and cannot be severed from its other parts.” As for the precise

terms of the agreement, the second amended complaint stated: “The forebearance [sic]

aspect of the parties’ agreement entailed Cedars-Sinai binding itself to these promises:

[¶] A. If Cedars-Sinai were to adopt, implement use or employ [a] plan for seeking

special status, using the modified method proposed by HRA, it would do so through

[HRA] exclusively; and [¶] B. Cedars-Sinai would forebear from hiring a Medicare

reimbursement advisory group other than HRA if it were to implement a modified

method for seeking special status like that in HRA’s proposal.”

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Cedars-Sinai again responded with a general demurrer, arguing the purported

forbearance agreement was, at most, an unenforceable agreement to agree. The hospital

maintained the alleged oral representations that preceded HRA’s presentation contained

nothing about the “material terms under which Cedars-Sinai would ‘retain’ [HRA].” The

lack of definite terms, Cedars-Sinai argued, was only reinforced by the slide HRA

attached as Exhibit A to its complaint. Not only did the slide refer to a separate

consulting agreement that HRA conceded had never been presented to Cedars-Sinai, but

the slide also belied the existence of a definite forbearance agreement insofar as it stated

“[i]f Cedars does decide to proceed with these strategies, it is expected that it will retain

[HRA] to provide the professional services necessary for implementation pursuant to the

terms of our CONSULTING AGREEMENT.” (Underscoring added.) Absent a meeting

of the minds on the terms of the consulting agreement, Cedars-Sinai argued the purported

agreement to “ ‘utilize’ [HRA] if [Cedars-Sinai] decided to proceed with reclassification”

was too indefinite to support a claim for declaratory relief.

The trial court sustained the demurrer without leave to amend. Citing, among

other things, the lack of specific terms concerning the parties’ alleged agreement, the

indefinite nature of the forbearance language in Exhibit A, and the fact that HRA had had

three opportunities to clearly state a viable claim for declaratory relief, the court

concluded granting further leave to amend would be futile.

DISCUSSION

1. Standard of Review

“When the trial court sustains a demurrer, we review the complaint de novo to

determine whether it alleges facts stating a cause of action on any possible legal theory.

[Citation.] ‘ “ ‘We treat the demurrer as admitting all material facts properly pleaded, but

not contentions, deductions or conclusions of fact or law.’ ” [Citations.]’ [Citation.]

‘Further, “we give the complaint a reasonable interpretation, reading it as a whole and its

parts in their context.” [Citations.]’ ” (Rossberg v. Bank of America, N.A. (2013)

219 Cal.App.4th 1481, 1490.)

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“The plaintiff has the burden of showing that the facts pleaded are sufficient to

establish every element of the cause of action and overcoming all of the legal grounds on

which the trial court sustained the demurrer, and if the defendant negates any essential

element, we will affirm the order sustaining the demurrer as to the cause of action.

[Citation.] We will affirm if there is any ground on which the demurrer can properly be

sustained, whether or not the trial court relied on proper grounds or the defendant

asserted a proper ground in the trial court proceedings. [Citation.]” (Martin v.

Bridgeport Community Assn., Inc. (2009) 173 Cal.App.4th 1024, 1031.)

“When a demurrer is sustained without leave to amend, we also must decide

whether there is a reasonable possibility that the defect can be cured by amendment.”

(Koszdin v. State Comp. Ins. Fund (2010) 186 Cal.App.4th 480, 487.) “The plaintiff

bears the burden of proving there is a reasonable possibility of amendment.

[Citation.] . . . [¶] To satisfy that burden on appeal, a plaintiff ‘must show in what

manner he can amend his complaint and how that amendment will change the legal effect

of his pleading.’ [Citation.] The assertion of an abstract right to amend does not satisfy

this burden. [Citation.] The plaintiff must clearly and specifically set forth the

‘applicable substantive law’ [citation] and the legal basis for amendment, i.e., the

elements of the cause of action and authority for it. Further, the plaintiff must set forth

factual allegations that sufficiently state all required elements of that cause of action.

[Citations.] Allegations must be factual and specific, not vague or conclusionary.

[Citation.]” (Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39,

43-44.)

2. The Terms of the Alleged Forbearance Agreement Are Too Indefinite to

Support a Claim for Declaratory Relief

Code of Civil Procedure section 1060 provides that “[a]ny person interested . . .

under a contract . . . may, in cases of actual controversy relating to the legal rights and

duties of the respective parties, bring an original action . . . in the superior court for a

declaration of his or her rights and duties in the premises, including a determination of

any question of construction or validity arising under the . . . contract.” The statute thus

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establishes two essential elements that must be present to state a claim for declaratory

relief on a contract: (1) a legally binding contract that is a proper subject for declaratory

relief; and (2) an actual controversy involving justiciable questions relating to the

contacting parties’ rights and obligations. (See Wilson & Wilson v. City Council of

Redwood City (2011) 191 Cal.App.4th 1559, 1582 (Wilson); Internat. etc. Teamsters v.

Bekins etc. Co. (1955) 135 Cal.App.2d 692, 697 (Bekins).) With regard to the first

element, “[a]n action for declaratory relief will not lie when a complaint alleges no facts

showing an enforceable contractual right in the plaintiff.” (Bekins, at p. 697; Dynamic

Ind. Co. v. City of Long Beach (1958) 159 Cal.App.2d 294, 300.) As for the second, an

“ ‘actual controversy’ ” is one that “ ‘encompasses a probable future controversy relating

to the legal rights and duties of the parties.’ ” (Wilson, at p. 1582.) The declaratory relief

statute “does not embrace controversies that are ‘conjectural, anticipated to occur in the

future, or an attempt to obtain an advisory opinion from the court.’ ” (Ibid.)

In the instant action, the operative second amended complaint admits that the only

actual controversy presently existing between the parties concerns the forbearance aspect

of the alleged agreement. That is, in view of Cedars-Sinai’s repeated representations in

the underlying judicial proceeding that it had no intention of disclosing HRA’s

confidential information, the complaint alleges a “judicial declaration is necessary and

appropriate” only insofar as “[Cedars-Sinai] contends . . . that obliging itself to the terms

of confidentiality and nondisclosure alone would fulfill its obligations . . . [while] [HRA]

contends to the contrary that defendant Cedars-Sinai’s forebearance [sic] from hiring any

other consultant to use the modified methods in the Presentation was integral to their

agreement and cannot be severed from its other parts.” Because no actual controversy

exists with respect to confidentiality and nondisclosure, we are concerned only with

whether the forbearance aspect of the alleged agreement presents a legally binding

contract that is a proper subject for declaratory relief.

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“Contract formation requires mutual consent, which cannot exist unless the parties

‘agree upon the same thing in the same sense.’ ” (Bustamante v. Intuit, Inc. (2006)

141 Cal.App.4th 199, 208 (Bustamante).) “ ‘Mutual assent is determined under an

objective standard applied to the outward manifestations or expressions of the parties,

i.e., the reasonable meaning of their words and acts, and not their unexpressed intentions

or understandings.’ [Citations.]” (Ibid.) “ ‘Under California law, a contract will be

enforced if it is sufficiently definite (and this is a question of law) for the court to

ascertain the parties’ obligations and to determine whether those obligations have been

performed or breached.’ [Citation.] ‘To be enforceable, a promise must be definite

enough that a court can determine the scope of the duty[,] and the limits of performance

must be sufficiently defined to provide a rational basis for the assessment of damages.’

[Citations.] ‘Where a contract is so uncertain and indefinite that the intention of the

parties in material particulars cannot be ascertained, the contract is void and

unenforceable.’ [Citations.] ‘The terms of a contract are reasonably certain if they

provide a basis for determining the existence of a breach and for giving an appropriate

remedy.’ [Citations.] But ‘[i]f . . . a supposed “contract” does not provide a basis for

determining what obligations the parties have agreed to, and hence does not make

possible a determination of whether those agreed obligations have been breached, there is

no contract.’ ” (Id. at p. 209.)

Cedars-Sinai contends the terms of the purported forbearance agreement, as

expressed in the parties’ alleged outward manifestations of intent, are too indefinite to

create an enforceable contract. We agree. Here, the complaint’s allegations concerning

the terms of the purported oral agreement are limited to essentially two outward

expressions of intent by the parties, neither of which supplies sufficiently definite terms

to support a claim for declaratory relief.

First is the alleged oral promise by Cedars-Sinai’s reimbursement manager.

Before HRA gave its presentation on the “modified method,” and after Cedars-Sinai

rejected HRA’s request for a written confidentiality and forbearance agreement, the

complaint alleges Cedars-Sinai’s reimbursement manager orally agreed that “ ‘If we

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decide to do it, we’ll do it with you.’ ” HRA maintains this statement amounted to an

oral agreement that “[i]f Cedars-Sinai were to adopt, implement, use or employ [a] plan

for seeking special status, using the modified method proposed by HRA, it would do so

through [HRA] exclusively.” That, to be sure, is a significant leap to make from such a

brief statement in the alleged context. Be that as it may, even if we presume that

deciding “ ‘to do it’ ” referred to “using the modified method proposed by HRA,” there

still is nothing from which a court could determine or declare the material terms of the

purported agreement to “do so through [HRA] exclusively.” That is, there is nothing in

the alleged statement that speaks to the price or scope of the consulting services, among

other things, that HRA would perform for Cedars-Sinai in the event it determined to

“us[e] the modified method.” Indeed, Cedars-Sinai’s reimbursement manager could not

have had any notion of what these material terms might be since, at the time he made the

statement, HRA had yet to give the presentation on its proposed consulting services.1

The only other relevant allegations merely underscore the point. During the

presentation, HRA displayed a slide that it claims “spelled out” the terms of the parties’

agreement “specifically and in detail.” But far from expressly setting forth definite terms

for Cedars-Sinai’s forbearance and HRA’s consulting services, the slide stated, in

equivocal fashion, “If Cedars does decide to proceed with these strategies, it is expected

that it will retain [HRA] to provide the professional services necessary for

implementation pursuant to the terms of our CONSULTING AGREEMENT.”

(Underscoring added.) As the trial court astutely observed, HRA’s statement that it only

“expected” Cedars-Sinai to retain it could hardly have conveyed to the hospital that it

1

Moreover, the alleged statement does not answer how long Cedars-Sinai is bound

to use only HRA or to define the scope of the supposed forbearance. This is critical, for

as Cedars-Sinai rightly points out, HRA’s “ ‘plan for seeking special status’ involves the

interpretation and use of publicly available regulations.” We agree with Cedars-Sinai on

this account—it strains credulity to believe that by stating, “If we decide to do it, we’ll do

it with you,” Cedars-Sinai could have intended to “preclude[ ] [itself] from using publicly

available regulations unless it contract[ed] with [HRA],” in exchange for simply

“listening to a sales pitch.”

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would be absolutely bound to forbear from retaining any other of the handful of

consultants with expertise in this area of Medicare regulations merely by allowing the

presentation to continue. What is more, the slide’s reference to the terms of a separate

consulting agreement again highlights the inchoate nature of the parties’ supposed

agreement and demonstrates that, at best, the parties had no more than an unenforceable

agreement to agree. (See Bustamante, supra, 141 Cal.App.4th at p. 213 [“an ‘agreement

to agree,’ . . . is unenforceable under California law. ‘[T]here is no contract where the

objective manifestations of intent demonstrate that the parties chose not to bind

themselves until a subsequent agreement [was] made’ ”].)

Tacitly conceding the indefinite nature of the alleged agreement to “ ‘do it with

you,’ ” HRA argues on appeal that its allegations are sufficient to prove the parties

entered into an enforceable “agreement to negotiate.” HRA contends the only “term

missing is the exact price for the work, if HRA were to be retained,” and the absence of

this term is not fatal to its cause of action because “[o]ne of the terms of a contract has to

be left open, in order for there to be any negotiation left to do.” We are not convinced.

While HRA relies on Copeland v. Baskin Robbins U.S.A. (2002) 96 Cal.App.4th 1251 for

the proposition that “a contract to negotiate an agreement is distinguishable from a so-

called ‘agreement to agree’ and can be formed and breached just like any other contract”

(id. at p. 1253), Copeland also critically held that “the appropriate remedy for breach of a

contract to negotiate is not damages for the injured party’s lost expectations under the

prospective contract but damages caused by the injured party’s reliance on the agreement

to negotiate” (id. at pp. 1260-1261, italics added). As the Copeland court explained,

“[t]he plaintiff cannot recover for lost expectations (profits) because there is no way of

knowing what the ultimate terms of the agreement would have been or even if there

would have been an ultimate agreement.” (Id. at p. 1263.)

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HRA admits that all its work reviewing “Cedars-Sinai’s cost reports and

spen[ding] dozens of hours researching potential Medicare special status for Cedars-

Sinai” was performed “prior to meeting with Cedars-Sinai.” (Italics added.)

Accordingly, even if we accept the premise that the parties’ statements and actions at the

meeting outwardly manifested an intent to enter a binding “agreement to negotiate,” such

an agreement still would not constitute a proper subject for declaratory relief on the facts

alleged. HRA admits that all costs related to tailoring its “modified method” to Cedars-

Sinai were incurred before meeting with the hospital and, therefore, not in reliance on

Cedars-Sinai’s supposed agreement to negotiate. HRA also admits that Cedars-Sinai was

under “no obligation” to retain HRA as a consultant. Hence, any declaration the court

might make with respect to the supposed “agreement to negotiate” would have no

practical effect on the parties’ future behavior—Cedars-Sinai has no obligation to

contract with HRA and HRA will incur no damage from Cedars-Sinai’s failure to

negotiate. Under these circumstances, it was not an abuse of discretion for the trial court

to reject HRA’s declaratory relief claim.2 (See Meyer v. Sprint Spectrum L.P. (2009)

45 Cal.4th 634, 648 [“when resolution of the controversy over future remedies would

have little practical effect in terms of altering parties’ behavior, courts have considerable

discretion, pursuant to Code of Civil Procedure section 1061, to deny declaratory relief

because it ‘is not necessary or proper at the time under all the circumstances.’ ”].)

2

HRA argues the trial court also erred by including an award of costs for Cedars-

Sinai in its judgment of dismissal, even though Cedars-Sinai did not pray for costs in its

demurrer. The argument has no merit. As the prevailing party, Cedars-Sinai was entitled

to costs “as a matter of right.” (Code Civ. Proc., § 1032, subd. (b).)

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DISPOSITION

The judgment is affirmed. Cedars-Sinai Medical Center, Inc. is entitled to its costs

on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

JONES, J.*

We concur:

EDMON, P. J.

LAVIN, J.

*

Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to

article VI, section 6 of the California Constitution.

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