CHARLES J. VACANTI v. State Comp. Ins. Fund

• Decision Date: 04 January 2001
• Docket Number: No. S071945.,S071945.
• Court: California Supreme Court
• Parties: CHARLES J. VACANTI, M.D., INC., et al., Plaintiffs and Appellants, v. STATE COMPENSATION INSURANCE FUND et al., Defendants and Respondents.

102 Cal.Rptr.2d 562

24 Cal.4th 800

14 P.3d 234

CHARLES J. VACANTI, M.D., INC., et al., Plaintiffs and Appellants, v. STATE COMPENSATION INSURANCE FUND et al., Defendants and Respondents.

No. S071945.

Supreme Court of California.

January 4, 2001.

Howrey & Simon, Howrey Simon Arnold & White, John E. McDermott, Philip G. Grant and Keri R. Curtis, Los Angeles, for Plaintiffs and Appellants.

Catherine I. Hanson, San Francisco, and Aynah V. Askansas, for California Medical Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

David Bryan Leonard, Los Angeles, for California Society of Industrial Medicine and Surgery, Inc., as Amicus Curiae on behalf of Plaintiffs and Appellants.

Paul R. Gant, Sacramento, for California Applicants' Attorneys Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Kroll & Tract, Kroll, Rubin & Fiorella, Woolls & Peer, Paul Woolls and Gregory B. Scher, Los Angeles, for Defendants and Respondents Fremont Compensation Insurance Company, Fremont Pacific Insurance Company, Fremont Indemnity Company, Pacific Compensation Insurance Company, Beaver Insurance Company and Unicare Insurance Company.

Hancock, Rothert & Bunshoft, Ray L. Wong, San Francisco, and Vipal J. Patel, Los Angeles, for Defendant and Respondent Republic Indemnity Company of America,

Richard A. Krimen, Charles W. Savage, San Francisco; Sheppard, Mullin, Richter & Hampton, Pierce T. Selwood and Frank Falzetta, Los Angeles, for Defendant and Respondent State Compensation Insurance Fund.

Heggeness & Sweet and Clifford D. Sweet III, San Diego, for Defendant and Respondent Superior National Insurance Company.

Barger & Wolen and Martin E. Rosen, Los Angeles, for Defendant and Respondent Pacific Rim Assurance Company.

Kern and Wooley, Susan T. Olson and Randy L. Rezen, Los Angeles, for Defendants and Respondents Liberty Mutual Fire Insurance Company, Liberty Mutual Insurance Company and Liberty Insurance Corporation.

Manatt, Phelps & Phillips and Marc P. Goodman, for Defendant and Respondent Unicare Insurance Company.

Ku, Fong, Larsen & Chen, Milam & Larsen, Paul A. Larsen and Jeffrey Milam, for Defendants and Respondents California Indemnity Insurance Company, California Casualty Management Company, California Casualty Indemnity Exchange, California Casualty Insurance Company, California Casualty General Insurance Company and California Casualty & Fire Insurance Company.

Rossbacher & Associates, Henry H. Rossbacher and James S. Cahill, Los Angeles, for Defendant and Respondent Continental Casualty Company.

Wildman, Harrold, Allen & Dixon, Michael L. McCluggage, Michael R. Blankshain, Douglas R. Carlson, Chicago, IL, and Kelly L. Murray, for Defendants and Respondents American Manufacturers Mutual Insurance Company, American Motorists Insurance Company, American Protection Insurance Company, Lumbermens Mutual Casualty Company, Continental Casualty Company, CNA Casualty of California, Valley Forge Insurance Company, Transcontinental Insurance Company and Transportation Insurance Company.

Burns, Ammirato, Palumbo, Milam & Baronian, Jeffrey Milam, Pasadena; Lewis, D'Amato, Brisbois & Bisgaard and Joseph K. Hegedus, Los Angeles, for Defendant and Respondent California Indemnity Insurance Company.

Charton, Vermes & Rovenger, Lloyd A. Charton, Santa Ana; Benjamin, Lugosi & Benjamin and Antoinette S. Waller, for Defendant and Respondent California Compensation Insurance Company. John M. Rea, Anthony Mischel, San Francisco, and Stella L. Owens-Murrell, Los Angeles, for the Department of Industrial Relations of the State of California as Amicus Curiae on behalf of Defendants and Respondents.

Finnegan, Marks & Hampton, Michael A. Marks and Ellen Sims Langille, San Francisco, for California Workers' Compensation Institute, American Insurance Association and Association of California Insurance Companies as Amici Curiae on behalf of Defendants and Respondents.

Kegel, Tobin & Truce, Encino, Theodore C. Hanf and Robert R. Wills, for Californians for Compensation Reform, California Chamber of Commerce, California Manufacturers Association, California Self-Insureds Association, California Small Business Association, California State Association of Counties, California Grocers Association, California Sheet Metal and Air Conditioning National Association, Western Growers Association, National Council of Self-Insurers, Employers Group, American Stores, Inc., American Freightways, Longs Drug Stores, Inc., and Coast Foundry and Manufacturing Company as Amici Curiae on behalf of Defendants and Respondents.

BROWN, J.

This case contains a new twist on the seemingly endless litigation over the scope of workers' compensation exclusivity. Unlike the typical case where an employee wishes to sue his or her employer or workers' compensation insurance carrier, this case involves a group of medical providers that wish to sue a group of workers' compensation insurers. In their novel complaint, the medical providers allege the insurers conspired to put them out of business by intentionally mishandling their lien claims before the Workers' Compensation Appeals Board (WCAB) and seek only to recover the damage to their businesses. We now consider whether the exclusive remedy provisions of the Workers' Compensation Act (WCA) preempt the statutory and tort claims asserted by these medical providers and conclude that these provisions bar some claims but not others.

I. Factual and Procedural Background

Because "[t]his case comes to us after the sustaining of a general demurrer . . ., we accept as true all the material allegations of the complaint." (Shoemaker v. Myers (1990) 52 Cal.3d 1, 7, 276 Cal.Rptr. 303, 801 P.2d 1054 (Shoemaker). The following facts appear from the allegations of the complaint.¹

Plaintiffs are (1) licensed medical groups that provided medical-legal services to employees with workers' compensation claims, and (2) medical management companies under contract to the medical groups.² To provide these services, plaintiffs employed or contracted with physicians to treat and evaluate employees injured in the workplace. After promptly paying these physicians, plaintiffs would seek compensation from the workers' compensation insurance carrier of the employee's employer.

Defendants are workers' compensation insurance carriers.³ At a meeting in 1991, defendants decided to put plaintiffs out of business by delaying payment or refusing to pay for services rendered by plaintiffs to injured workers. As part of their scheme, defendants agreed to keep the meeting secret and to deny the existence of their plan to eliminate plaintiffs.

In subsequent meetings, defendants discussed strategies and distributed "hit lists" of targeted medical providers, including plaintiffs. Reminiscent of the methods used by Great Benefit Insurance Company, the villain in the John Grisham thriller, The Rainmaker (Doubleday, 1995), defendants developed procedures for delaying or avoiding payment to plaintiffs using "false, fraudulent and frivolous objections." Defendants incorporated these procedures into their claims manuals and training protocols. Defendants also misled plaintiffs into believing they would promptly pay all valid lien claims. Meanwhile, they publicly accused plaintiffs of being "fraud mills" and advised other insurance carriers not to pay plaintiffs' claims.

Due to the "no pay" or "slow pay" tactics of defendants, plaintiffs suffered heavy business losses. Because plaintiffs promptly paid the treating physician even if they failed to receive timely compensation, plaintiffs were especially susceptible to a disruption in cash flow. Not surprisingly, defendants' tactics were quite effective, as "the average time from billing to payment rose dramatically" and "the percentage collected [by plaintiffs] of the amount billed steadily declined." These tactics eventually forced plaintiffs out of business, and plaintiffs "now exist only to collect outstanding accounts receivable."

Plaintiffs filed suit against defendants, alleging: (1) abuse of process; (2) fraud; (3) violations of the Cartwright Act (Bus. & Prof.Code, § 16700 et seq.); (4) violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) (18 U.S.C. § 1962(c)); (5) conspiracy to violate RICO (id., § 1962(d)); (6) intentional and negligent interference with ongoing businesses; (7) intentional and negligent interference with contractual and prospective economic relations; and (8) violations of the unfair competition law (UCL) (Bus. & Prof.Code, § 17200 et seq.). Plaintiffs based their claims on defendants' alleged scheme to wrongfully delay or avoid payment on plaintiffs' lien claims and sought to recover the damage to their businesses. In doing so, plaintiffs declined to seek recovery of any amount owed on their individual lien claims against defendants.

Defendants filed a demurrer to plaintiffs' first amended complaint, alleging, among other things, that the exclusive remedy provisions of the WCA bar plaintiffs' claims. The first trial court judge overruled the demurrer on exclusivity grounds, but dismissed with leave to amend on other grounds. After plaintiffs filed a second amended complaint, defendants filed another demurrer, again alleging that workers' compensation exclusivity bars plaintiffs' claims. The same judge overruled the demurrer again and held that "[t]his is not an action to adjudicate medical liens in Worker's Compensation cases" and plaintiffs'"use of the liens does not impinge on the exclusive jurisdiction of the Worker's Compensation Appeals Board."

After the first judge retired, a new judge took over. Two defendants subsequently added to the complaint filed a demurrer, contending once again that plaintiffs could only recover the remedies provided by the workers' compensation system. After plaintiffs amended their complaint a third time, the second judge sustained the demurrer solely on exclusivity grounds. Concluding that ...