Smith v. Selma Cmty. Hosp.

• Decision Date: 01 December 2010
• Docket Number: No. F057802.,F057802.
• Citation: 115 Cal.Rptr.3d 416,2010 Daily Journal D.A.R. 13,188 Cal.App.4th 1,10 Cal. Daily Op. Serv. 11, 603
• Court: California Court of Appeals Court of Appeals
• Parties: Brenton R. SMITH, Plaintiff and Appellant, v. SELMA COMMUNITY HOSPITAL, Defendant and Respondent.

188 Cal.App.4th 1

115 Cal.Rptr.3d 416

10 Cal. Daily Op. Serv. 11,603

2010 Daily Journal D.A.R. 13,933

Brenton R. SMITH, Plaintiff and Appellant,

v.SELMA COMMUNITY HOSPITAL, Defendant and Respondent.

No. F057802.

Court of Appeal, Fifth District, California.

Sept. 1, 2010.

As Modified on Denial of Rehearing Sept. 27, 2010.

Review Denied Dec. 1, 2010.

**422 Andrews & Hensleigh, Barbara Hensleigh and John J. Aumer, Los Angeles, for Plaintiff and Appellant.

Manatt, Phelps & Phillips, Barry S. Landsberg, Doreen W. Shenfeld and Joanna S. McCallum, Los Angeles, for Defendant and Respondent.

*6 OPINION

DAWSON, J.

The governing board of Selma Community Hospital (also SCH) terminated the hospital privileges of Brenton R. Smith, M.D., and Smith filed a petition for writ of mandamus seeking to have his hospital privileges reinstated. Smith prevailed in the writ proceeding and also won when the hospital appealed. ( Smith v. Selma Community Hospital (2008) 164 Cal.App.4th 1478, 80 Cal.Rptr.3d 745 [superior court's issuance of writ affirmed].) After the appeal, Smith filed a motion for attorney fees pursuant to *7 Business and Professions Code section 809.9.¹ The trial court denied the motion, and Smith appealed.

Section 809.9 provides that the court shall award attorney fees "to a substantially prevailing party" in a peer review lawsuit "if the other party's conduct in bringing, defending, or litigating the suit was frivolous, unreasonable, without foundation, or in bad faith." The parties disagree on (1) the interpretation of section 809.9, (2) the proper application of the opinion in Mir v. Charter Suburban Hospital (1994) 27 Cal.App.4th 1471, 33 Cal.Rptr.2d 243 ( Mir ), (3) the evidence that is relevant to the determination of bad faith, and (4) whether this court can determine as a matter of law that the hospital's conduct meets one of the four grounds stated in section 809.9.

We conclude that (1) when the conditions contained in section 809.9 are shown, the prevailing party is entitled to attorney fees—that is, the award of fees is not discretionary; (2) the statutory phrase "frivolous, unreasonable, without foundation, or in bad faith" sets forth separate **423 grounds for an award of attorney fees; (3) the terms "frivolous," "unreasonable," and "without foundation" are objective standards that might overlap; (4) the term "bad faith" is a subjective standard concerned with a defendant's motives for defending or litigating a lawsuit; (5) because a defendant's subjective state of mind is usually proven by circumstantial evidence, a defendant's prelitigation conduct and postlitigation conduct are relevant evidence from which inferences can be drawn regarding its motives in defending or litigating a lawsuit; and (6) this matter will be remanded so the legal standard for bad faith adopted in this opinion can be applied to the evidence relevant to that determination.

BACKGROUND

A fundamental issue in this appeal is the motivation for the conduct of SCH and its affiliates toward Smith. Because motive, which is one aspect of state of mind, usually is shown by circumstantial evidence, we will describe in detail some of the evidence in the record regarding Smith's relationship with SCH and its affiliates.²

Smith is a licensed physician with certified specialties in family practice and emergency room medicine. He moved to Fresno County in 1983 and grew his practice until his corporation owned 12 clinics in the Central Valley. Smith's clinics compete with clinics owned by Adventist Health System/West in the same area.

*8 In the 1980's, Smith became a member of the medical staffs of three hospitals, which are now named Selma Community Hospital, Hanford Community Medical Center, and Central Valley General Hospital.

Smith's conflicts with the parent and affiliates of SCH ³ appear to have begun in October 1999 when Smith planned to open a birthing center in Hanford, California that would have competed directly with the Hanford hospitals. Around that time, Darwin Remboldt (who Smith believed was the chief executive officer of Central Valley General Hospital and an attorney) summoned Smith to a meeting at Remboldt's offices. At that meeting, according to Smith, Remboldt was blunt:

"Mr. Remboldt informed me that he was not going to allow me to build the birthing center. Mr. Remboldt said to me: 'Either you become a physician in Kings Health [a Medical Group run by one of (the Hanford) hospitals] or we are going to run you out of town.' " ⁴

Then, in mid-2000, a representative of the Hanford hospitals approached Smith with an offer to purchase his practice, which Smith declined. After Smith declined the offer, SCH instituted proceedings to terminate his hospital privileges, claiming Smith had an altercation with a nurse in front of a patient and the patient's family in April 2000. Smith's attorney sent a private investigator to interview the patient and her family, interviews which had not been conducted by SCH. Smith **424 and his attorney submitted the witness statements to SCH and the hospital withdrew the claim and agreed to purge Smith's credential/privilege file of all documents related to the matter.

In late 2001, Remboldt approached Smith again about purchasing his practice. By March 2002, Smith and Central Valley General Hospital had entered into a letter of intent for the hospital's purchase of Smith's practice and clinics for $8 million. Among other things, the letter of intent provided that Smith would be paid for managing the clinics and consulting with the Hanford hospitals after the purchase and that he could not compete with them.

During the due diligence period specified in the letter of intent, Central Valley General Hospital became concerned with alleged billing irregularities at Smith's clinics. About this time (late March 2002), a subcommittee of the medical executive committee of the Hanford hospitals convened and was *9 charged with investigating a series of complaints against Smith. The complaints included allegations of unprofessional conduct, disruptive behavior, abuse of staff, falsification of medical records, and substandard patient care. Smith contends these charges were pursued to gain leverage in the purchase of his clinics and thereby eliminate him as a competitor.⁵

On May 31, 2002, Smith met with representatives of Adventist Health about the sale. They demanded changes in the terms of purchase to make them significantly more favorable to Central Valley General Hospital, including the elimination of payments to Smith for management and consulting services and prohibiting Smith from practicing medicine in Fresno and Kings Counties. Smith rejected the offer.

Immediately after the meeting, Adventist Health terminated contracts with Smith for the provision of emergency room and clinic services, which represented over $1 million in revenue to his practice, and a management agreement. Adventist Health also accused Smith of systematic billing fraud.

Also near the time of the meeting, Adventist Health sent Smith a letter accusing him of using foul language in speaking to a nurse in front of a patient. As he did in response to SCH's accusation in mid-2000, Smith hired an investigator who interviewed the patient who stated the alleged incident never happened. Like the mid-2000 accusation, the hospital had not interviewed the patient about the alleged incident.

On June 26, 2002, Smith attended a meeting with representatives of Adventist Health and its lawyers. They offered to purchase Smith's practice on the same terms presented to Smith about a month earlier and told him the terms were not negotiable. Again, Smith rejected the offer.

On July 2, 2002, before the discussions concerning the sale of Smith's clinics were terminated,⁶ the Hanford hospitals orally informed Smith that his privileges had **425 been suspended and he had been granted temporary privileges until July 9, 2002.

On Friday, July 5, 2002, according to Smith, he met with Remboldt about the sale of Smith's clinics. Remboldt mentioned Smith's retirement, his financial security, recognition of Smith's contributions to the community, the placement of *10 a plaque to Smith in the nursery of a planned new birthing hospital, job security for Smith's employees, and the continued operation of the clinics he started. Remboldt also told Smith that Adventist Health had set aside $5 to 7 million to complete the acquisition of his practice. Remboldt told Smith they needed to wrap up the sale and emphasized the need for Smith to call Adventist Health's representative before the close of business on July 8, 2002, which was the day before the decision was to be made about extending Smith's privileges. Remboldt told Smith the offer to acquire his practice essentially was a take it or leave it, nonnegotiable offer that would expire on Monday, July 8, 2002.

Smith left the meeting with the belief that the purpose of the meeting had been to force him to sell his practice on the terms offered or face the loss of his privileges. Smith did not intend to sell on those terms and, fearing the loss of his privileges and practice, he instructed his attorney to seek a temporary restraining order.

On July 8, 2002, Smith filed in Kings County a verified complaint for preliminary and permanent injunctive relief that requested the Hanford hospitals be enjoined from terminating or suspending his privileges unless they first afforded him fair procedure rights in accordance with section 809 et seq.

On July 9, 2002, the parties stipulated in open court that, in lieu of obtaining a ruling from the superior court on the merits of the temporary restraining order requested by Smith, the superior court would enter the following order: "The [Hanford] hospital[s] will do nothing to revoke, suspend or modify Dr. Smith's staff privileges prior to September 30, 2002, unless such modification, revocation or suspension is in full compliance with ... Section 809, et seq."

After the court hearing, Smith received...