Cal. Physicians Serv., Inc. v. Healthplan Servs., Inc.
| Decision Date | 09 March 2021 |
| Docket Number | Case No. 3:18-cv-03730-JD |
| Court | U.S. District Court — Northern District of California |
| Parties | CALIFORNIA PHYSICIANS SERVICE, INC., Plaintiff, v. HEALTHPLAN SERVICES, INC., et al., Defendants. |
In 2013, plaintiff California Physicians Service, which does business as Blue Shield of California (Blue Shield), outsourced patient enrollment, account management, billing, and other services to defendant Healthplan Services (HPS) under a Business Process Outsourcing Agreement (BPOA). Blue Shield found HPS's performance of the services to be unsatisfactory in virtually every respect, and filed this action in June 2018 for breach of the BPOA. See Dkt. No. 1. After a few rounds of pleadings motions, and the Court's dismissal of several claims, see Dkt. No. 73, the third amended complaint (TAC) is the operative complaint. Dkt. No. 111.
One of the contract claims in the TAC relates to a "Parental Guaranty" that Blue Shield signed in 2013 with HPH-TH Holdings, Inc. (HPH-TH), HPH Holdings Corp., and Healthplan Holdings, Inc., as guarantors of HPS. Dkt. No. 111, Exh. 1 at 239. Section 7(e) of the Parental Guaranty states that "at all times" up to termination, "the fair saleable value of the property of the Guarantor is and will be at least one hundred twenty percent (120%) in excess of the total liabilities of the Guarantor (including the maximum amount reasonably expected to become due in respect of this Parental Guaranty and all other contingent liabilities of the Guarantor)." Id. at 242. HPH Holdings Corp. and Healthplan Holdings, Inc. subsequently merged into HPS sometime in 2017. See Dkt. No. 151 at 3. HPH-TH did not merge with HPS.
Blue Shield seeks an injunction requiring HPS to satisfy the terms of Section 7(e) on the ground that the obligations "now reside in HPS" after the mergers. Id. at 1. HPS does not dispute this proposition, and the Court accepts it for purposes of this order, without reaching any findings of fact or binding conclusions about it at this time.
The request is denied. The objections to evidence, Dkt. Nos. 163, 171, are terminated. The Court did not rely on disputed evidence, and in any event, the rules of evidence are relaxed in preliminary injunction proceedings. See Upshaw v. Alameda County, 377 F. Supp. 3d 1027, 1032 (N.D. Cal. 2019).
Blue Shield's motion is peculiar in several respects. To start, Blue Shield did not seek an injunction under Federal Rule of Civil Procedure 65, which is the rule expressly dedicated to preliminary injunction motions. It moved instead under Rule 64, see Dkt. No. 151 at 1, which incorporates state law "to determine the availability of prejudgment remedies for the seizure of person or property to secure satisfaction of the judgment ultimately entered." Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70 of Alameda Cty., 415 U.S. 423, 436 n.10 (1974). These remedies include writs of attachment and similar state law procedures for the seizing of property in advance of trial and a judgment. Fed. R. Civ. P. 64(b); see also Reebok Int'l Ltd. v. Marnatech Enters. Inc., 970 F.2d 552, 558 (9th Cir. 1992) (). California law governs the Parental Guaranty, see Dkt. No. 111, Exh. 1 at 242-43, and the procedures for obtaining prejudgment seizures are stated in California Code of Civil Procedure Sections 481.010 - 493.060, which impose a number of specific requirements that must be satisfied. California deems prejudgment seizures such as a writ of attachment to be "a harsh remedy because it causes the defendant to lose control of his property before the plaintiff's claim is adjudicated." Martin v. Aboyan, 148 Cal. App. 3d 826, 831 (1983).
Blue Shield never says why Rule 64 might apply here. After citing it as the only grounds for its motion, see Dkt. No. 151 at 1, Blue Shield abandoned it in favor of arguments based onCalifornia's general injunction statute, California Code of Civil Procedure Section 526. See Dkt. No. 151 at 6 et seq. In effect, Blue Shield took Rule 64 to the dance and left it at the door.
A good argument can be made that this is enough to deny the motion. Blue Shield made no meaningful arguments for an injunction under Rule 64 or the state prejudgment seizure provisions it imports, and yet Rule 64 is the sole grounds on which it moved. This unduly burdened HPS and the Court with burning resources on a phantom argument. The Court is also concerned that Blue Shield's reference to Rule 64 was a calculated effort to sidestep the hurdles it faced under the traditional injunction standards. Even so, the Court will decide the injunction request in the interest of putting it to rest.
The problems with Blue Shield's motion extend beyond the Rule 64 misfire. By focusing on the California injunction statute, and barely acknowledging Rule 65, Blue Shield slights an important choice of law issue under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). This Court is sitting in diversity in a case that presents California state law contract claims. In this circumstance, Erie advises that the Court should apply federal procedural law and state substantive law to the contract claims. See Hanna v. Plumer, 380 U.S. 460, 471 (1965); Sonner v. Premier Nutrition Corp., 971 F.3d 834, 839 (9th Cir. 2020). The application of this rule is not always easy because the "[c]lassification of a law as 'substantive' or 'procedural' for Erie purposes is sometimes a challenging endeavor." Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996). This has proven especially true when determining the law that should apply to decide the availability of a preliminary injunction in a diversity action. See, e.g., Sims Snowboards, Inc. v. Kelly, 863 F.2d 643, 647 (9th Cir. 1988) ().
The question is acute here because CCP Section 526 delineates a variety of specific instances when an injunction may or may not be granted by a California court. For example, Section 526 expressly states that an injunction "cannot be granted" to "prevent the breach of a contract the performance of which would not be specifically enforced." Cal. Code Civ. Proc. § 526(b)(5) (). Itexpressly allows an injunction to be granted when a party may do something in derogation of another's rights and "tending to render the judgment ineffectual." Id. § 526(a)(3). The interplay of Section 526 with our federal injunction practice under Rule 65 is the Erie issue raised by Blue Shield's motion.
Neither Blue Shield nor HPS did justice to this question. Blue Shield largely assumed, without meaningful analysis, that Section 526 governs its motion. See Dkt. No. 151 at 6. HPS took a closer look at the Erie question, but jumped to the conclusion that Rule 65 controls on the basis of a smattering of district court cases going that way. Dkt. No. 159 at 5-6. Neither side really tackled the issue, and in the absence of adequate briefing, the Court is not inclined to make extensive conclusions about the allocation of procedural and substantive issues under California law and federal practice.
Nor is that necessary to resolve Blue Shield's motion. Whether analyzed under CCP Section 526 or FRCP Rule 65, the result is the same: Blue Shield is not entitled to an injunction on the record before the Court. In both jurisdictions, an injunction is not available unless the plaintiff has demonstrated a likelihood of success on the merits, and the possibility of imminent and irreparable harm if relief is not granted. The federal formulation of these requirements is well-established. See generally Michigan v. DeVos, 481 F. Supp. 3d 984, 990-91 (N.D. Cal. 2020). Preliminary injunctions are "an extraordinary remedy never awarded as of right." Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). "A plaintiff seeking a preliminary injunction must establish that he [or she] is likely to succeed on the merits, that he [or she] is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his [or her] favor, and that an injunction is in the public interest." Winter, 555 U.S. at 20; see also Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (en banc) (same). In our circuit, a plaintiff may also obtain a preliminary injunction under a "sliding scale" approach by raising "serious questions" going to the merits of the plaintiff's claims and showing that the balance of hardships tips "sharply" in his or her favor. A Woman's Friend Pregnancy Res. Clinic v. Becerra, 901 F.3d 1166, 1167 (9th Cir. 2018); see also Vanguard Outdoor, LLC v. City of L.A., 648 F.3d 737, 740 (9th Cir. 2011).
While a plaintiff must establish all four of the Winter factors to obtain a preliminary injunction, see A Woman's Friend, 901 F.3d at 1167, a demonstration of "a fair chance of success on the merits, or questions serious enough to require litigation" is "an irreducible minimum" for injunctive relief. Airbnb, Inc. v. City and Cnty. of San Francisco, 217 F. Supp. 3d 1066, 1072 (N.D. Cal. 2016) (citation omitted).
A showing of imminent irreparable harm is also essential. See Winter, 555 U.S. at 22; Caribbean Marine Servs. Co., Inc. v. Baldridge, 844 F.2d 668, 674 (9th Cir. 1988) () (citation omitted). That is because "the basis of injunctive relief in the federal courts has always been irreparable harm and inadequacy of legal remedies." Sampson v. Murray, 415 U.S. 61, 88 (1974) (internal quotations and citations omitted).
So too under California state law. ...
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