Schmidt v. Foundation Health

• Decision Date: 26 June 1995
• Docket Number: No. C015978,C015978
• Citation: 42 Cal.Rptr.2d 172,35 Cal.App.4th 1702
• Court: California Court of Appeals Court of Appeals
• Parties: James R. SCHMIDT, Plaintiff and Appellant, v. FOUNDATION HEALTH, et al., Defendants and Respondents.

Page 172

42 Cal.Rptr.2d 172

35 Cal.App.4th 1702

James R. SCHMIDT, Plaintiff and Appellant, v. FOUNDATION HEALTH, et al., Defendants and Respondents.

No. C015978.

Court of Appeal, Third District, California.

June 26, 1995.

Review Denied Oct. 19, 1995.

Perez & McNabb, Sandra J. McNabb and Jeffrey Alan Miller, Orinda, for plaintiff and appellant.

Kroloff, Belcher, Smart, Perry & Christopherson, Elizabeth Humphreys, Randy G. Lockwood, Stockton, and Taylor & Jenkins and William J. Taylor for defendants and respondents.

SPARKS, Associate Justice.

In this appeal, we conclude that the Knox-Keene Health Care Service Plan Act of 1975 (Act) (Health & Saf.Code, § 1340 et seq.) and section 1300.46 of title 10 of the California Code of Regulations (hereafter regulation 1300.46) prohibit a broker of health care service plans from rebating commissions to his clients.

Plaintiff James R. Schmidt worked as an independent broker for the health care plans offered by defendants Foundation Health (Foundation) and St. Joseph's--Omni Health Plan, Inc. (Omni), and received a commission from defendants for the clients he obtained. In an effort to increase his client base, plaintiff offered to rebate his commission to prospective clients. Defendants believed this rebate scheme violated provisions of the Act and an implementing regulation, and terminated their relationships with plaintiff.

Plaintiff filed suit against defendants alleging numerous causes of action including conspiracy to restrain trade, tortious interference with contract and prospective economic relationships, and slander. Defendants successfully demurred to the slander cause of action as contained in plaintiff's second amended complaint, and the trial court subsequently sustained defendants' demurrer to the remaining causes of action as alleged in the fourth amended complaint.

Plaintiff appeals from the ensuing judgment of dismissal, asserting his rebate plan was legal and the slander allegations were sufficient to withstand a demurrer. We conclude the trial court properly found plaintiff's rebate offer violated the Act and regulation 1300.46. We further conclude the court

properly sustained defendants' demurrer to the slander cause of action, and shall therefore affirm the judgment.

STANDARD OF REVIEW

A demurrer tests the sufficiency of the complaint by raising questions of law. (Aragon-Haas v. Family Security Ins. Services, Inc. (1991) 231 Cal.App.3d 232, 238, 282 Cal.Rptr. 233; Code Civ.Proc., § 589, subd. (a).) "In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58; accord, Crowley v. Katleman (1994) 8 Cal.4th 666, 672, 34 Cal.Rptr.2d 386, 881 P.2d 1083.)

In reviewing the legal sufficiency of a demurrer, we are not concerned with plaintiff's ability to prove the allegations of the complaint, or the possible difficulties in making such proof. Neither are we bound by the trial court's construction of the pleadings; instead, we exercise our independent judgment in determining whether the complaint states a cause of action. (Aragon-Haas v. Family Security Ins. Services, Inc., supra, 231 Cal.App.3d at pp. 238-239, 282 Cal.Rptr. 233.)

With these principles in mind, we turn to the complaint at issue here.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff's complaint alleged the following background information: Plaintiff was a "licensed independent health insurance agent" doing business in San Joaquin County. Defendants were the two predominant health care service plans in the area. In January 1991, plaintiff entered into agreements with defendants to "promote [defendants'] various ... health plans to his client groups." In return, defendants were to "provide marketing materials, group quotations, and marketing support as needed...." Defendants were to accept plaintiff as the broker of record for the client groups appointing him as such, and pay plaintiff a monthly commission for these accounts in accordance with defendants' standard commission schedule.

During 1991, plaintiff made sales calls on numerous client groups, worked with defendants in obtaining quotations, and had Omni employees accompany him on sales calls. Plaintiff alleged that in making sales calls, he "advised potential client groups that he would save them money on his services and thereby reduce their health insurance costs by legally rebating a portion of his commission to them in the event they selected him as their Broker of Record. He further advised such client groups that they were welcome to contact [defendants] about this rebate proposal."

On January 6, 1991, one company, Qualex, appointed plaintiff as its broker of record for all of its Foundation coverage, and a few days later, another company, MEPCO, appointed plaintiff for its Omni coverage. Plaintiff had a "reasonable probability" of being appointed broker of record by numerous other companies and was in the process of finalizing agreements with them. However, toward the end of January 1991, Omni notified plaintiff that it would not accept him as broker of record for MEPCO "because he had agreed to rebate a portion of his commission to that client." Similarly, after Foundation "informed Qualex that plaintiff's rebate policy was illegal," Qualex canceled the appointment of plaintiff as its broker of record. Plaintiff alleged defendants also "advised some or all of [his] prospective clients that plaintiff's rebate offers were illegal, unethical and 'shady,' " causing the prospective clients to break off negotiations with plaintiff.

Defendants notified plaintiff that they were terminating their relationships with him and would no longer do business with plaintiff "because he offered clients rebates of his commission."

Plaintiff attempted to file an appropriate complaint against defendants for restraint of trade, breach of the covenant of good faith and fair dealing, and various torts, including slander. Defendants successfully demurred to four such complaints with the trial court granting plaintiff leave to amend all causes of action except the one alleging a claim for slander. As discussed in detail below, the trial court concluded the allegedly defamatory statements outlined in plaintiff's second amended complaint were nonactionable statements of opinion.

Plaintiff's final complaint, the fourth amended complaint, alleged 11 causes of action, including conspiracy to restrain trade, breach of the covenant of good faith and fair dealing, tortious interference with contract, tortious interference with prospective economic relationships, conspiracy to interfere with existing and prospective economic relationships, and intentional misrepresentation. Defendants demurred to this complaint, noting plaintiff's claims were all predicated on the assumption that defendants wrongfully refused to do business with plaintiff due to his rebate practices, and wrongfully told plaintiff's clients that these practices were illegal. Defendants asserted plaintiff's rebate policy was, in fact, contrary to the Act and, more particularly, a regulation promulgated in furtherance of the Act, regulation 1300.46. This regulation provides: "No person subject to the provisions of the Act shall offer or otherwise distribute any bonus or gratuity to potential subscribers for the purpose of inducing enrollment or to existing subscribers for the purpose of inducing the continuation of enrollment."

Plaintiff asserted regulation 1300.46 was inapplicable because it did not specifically prohibit rebating, and the words "bonus" or "gratuity" could not be interpreted to include "rebate." He further argued that he did not offer rebates for the proscribed purpose of inducing enrollment or continuation of enrollment, but simply to "persuade subscribers to cho[o]se him as their broker of record, regardless of which plan they chose."

The trial court concluded plaintiff's rebate practice was prohibited by regulation 1300.46, and sustained defendants' demurrers to the complaint. Plaintiff appeals from the ensuing judgment of dismissal.

DISCUSSION

I. Overview of the Act

The Act (Health & Saf.Code, § 1340 et seq. [all subsequent statutory references are to the Health and Safety Code unless otherwise indicated] ) regulates health care service plans and establishes standards for such plans. ¹ This comprehensive statutory scheme is designed "to promote the delivery of health and medical care to the people of the State of California who enroll in, or subscribe for the services rendered by, a health care service plan or specialized health care service plan." (§ 1342.)

This goal is to be achieved through a variety of means, including education, to promote rational consumer choices. Thus, the Act is designed in part to "assur[e] that subscribers and enrollees are educated and informed of the benefits and services available in order to enable a rational consumer choice in the marketplace." (§ 1342, subd. (b).) Similarly, the Act "[p]rosecut[es] malefactors who make fraudulent solicitations or who use deceptive methods, misrepresentations, or practices which are inimical to the general purpose of enabling a rational choice for the consumer public." (§ 1342, subd. (c).)

Numerous provisions of the Act reflect the goal of creating an informed consumer public. For example, health care service plans must disseminate disclosure forms outlining the plan's benefits, services and terms of the...