State Comp. Ins. Fund v. Readylink Healthcare, Inc.

• Decision Date: 12 June 2020
• Docket Number: D075942
• Parties: STATE COMPENSATION INSURANCE FUND, Plaintiff and Respondent, v. READYLINK HEALTHCARE, INC., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

50 Cal.App.5th 422

264 Cal.Rptr.3d 68

STATE COMPENSATION INSURANCE FUND, Plaintiff and Respondent,

v.READYLINK HEALTHCARE, INC., Defendant and Appellant.

D075942

Court of Appeal, Fourth District, Division 1, California.

Filed June 12, 2020

Roxborough, Pomerance, Nye & Adreani, Edward D. Pomerance, Vincent S. Gannuscio and David R. Ginsburg, Woodland Hills, for Defendant and Appellant.

Anthony Lewis, Noah Graff, R. Timothy O'Connor, Eric P. Jones, Pleasanton, Tony M. Chang, Pasadena, and Seaton Tsai for Plaintiff and Respondent.

AARON, J.

I.INTRODUCTION

Defendant ReadyLink Healthcare, Inc. (ReadyLink) is a nurse staffing company that places nurses in hospitals, typically on a short-term basis. Plaintiff State Compensation Insurance Fund (SCIF) is a public enterprise fund created by statute as a workers' compensation insurer. Like private workers' compensation insurers, SCIF provides workers' compensation insurance to employers. The premiums that SCIF charges are based in part on the employer's payroll for a particular insurance year.

SCIF and ReadyLink have been engaged in a multiyear, multijurisdictional dispute over the final amount of workers' compensation insurance premium that ReadyLink owes to SCIF for the 2005 policy year, from September 1, 2005 to September 1, 2006, based on an audit of ReadyLink's payroll for that year performed by SCIF. During the audit, SCIF determined that certain payments made by ReadyLink to its nurses, which ReadyLink characterized as per diem payments, should instead be considered to be payroll under the relevant workers' compensation regulations.¹ SCIF's audit resulted in a significant increase in ReadyLink's premium for the policy year at issue.

ReadyLink challenged SCIF's application of the regulations by filing an appeal of the audit to the Insurance Commissioner. The Insurance Commissioner approved SCIF's application of the relevant regulation. A trial court rejected ReadyLink's petition for a writ of administrative mandamus to prohibit the Insurance Commissioner from enforcing its decision, and an appellate court affirmed the trial court's judgment.²

SCIF subsequently filed the action underlying this appeal, pleading causes of action including breach of contract, and seeking a judgment for damages against ReadyLink for its failure to pay the additional premium amount that SCIF had calculated was owed pursuant to its audit of ReadyLink's 2005 policy year payroll. ReadyLink answered SCIF's complaint and asserted a number of affirmative defenses, including estoppel, waiver, and fraud. ReadyLink was later granted leave to file an amended answer, in which it provided additional factual allegations supporting its affirmative defenses.

SCIF moved for judgment on the pleadings, claiming that the issue of the premium that ReadyLink owed for the 2005 policy year had been previously determined in the administrative proceeding and had been affirmed by subsequent judicial review of the administrative decision, and further claiming that issues related to ReadyLink's affirmative defenses had also been litigated in the prior proceedings. The trial court agreed with SCIF and concluded that SCIF's "action was necessary to reduce SCIF's claim to the premium owed to a judgment," and that "[t]he amount owed is precisely what was determined in the underlying administrative decision and appeals." The trial court granted SCIF's motion for judgment on the pleadings and entered a judgment in favor of SCIF in the amount of $555,327.53, plus prejudgment interest of $571,606.99.

On appeal, ReadyLink contends that the trial court erred in granting SCIF's motion for judgment on the pleadings, and also asserts that the trial court erred in denying ReadyLink's motions to compel further discovery responses from SCIF. According to ReadyLink, the trial court erred in concluding that the amount of premium it owes SCIF for the 2005 policy year was determined in prior proceedings. ReadyLink concedes that it previously litigated and lost its challenge to SCIF's decision to include per diem amounts as payroll for the 2005 insurance year, but argues that it has never had the opportunity to challenge whether SCIF otherwise properly calculated the premium amount that it claims is due, pursuant to the terms of the contract between the parties, or whether SCIF's past conduct, which ReadyLink alleges includes SCIF's acceptance of ReadyLink's exclusions of its per diem payments from payroll in prior policy years and SCIF's exclusion of per diem amounts in paying out on workers' compensation claims filed by ReadyLink employees, might bar SCIF from being entitled to collect that premium amount under the contract.

We agree with ReadyLink that the trial court erred in granting SCIF's motion for judgment on the pleadings. A full review of the collateral administrative and judicial proceedings demonstrates that ReadyLink and SCIF have not previously litigated the vast majority of issues raised by SCIF's action seeking to collect additional premium amounts from ReadyLink, and further reveals that those issues could not have been litigated in the administrative action. We therefore reverse the judgment, as well as the court's interlocutory order denying ReadyLink's motion to compel further discovery responses from SCIF. We remand the matter for further proceedings.

II.FACTUAL AND PROCEDURAL BACKGROUND

A. Factual background

1. Background regarding ReadyLink and its payments to its nurse employees

Appellant ReadyLink is a nurse staffing company based in Thousand Palms, California. It contracts with registered nurses, licensed vocational nurses, and certified nursing assistants from throughout the United States and places them at hospitals.

During the relevant time period, ReadyLink paid its nurses an hourly wage and, with respect to its California nurses for whom the workers' compensation insurance is at issue in this case, also paid a "per diem" amount. The per diem component that ReadyLink relied on in paying its nurses was calculated using location-specific federal tables, known as "CONUS" tables. ReadyLink pays the per diem to nurses as an expense, which is taken from its general and administrative account, rather than as payroll.

2. SCIF's role as ReadyLink's workers' compensation insurer

SCIF is a public enterprise fund, created pursuant to Insurance Code section 11770 et seq., as a workers' compensation insurer.³ In September 2000, ReadyLink applied for workers' compensation insurance through SCIF, and SCIF issued a policy to ReadyLink. ReadyLink's workers' compensation policy with SCIF was renewed annually until ReadyLink cancelled its coverage with SCIF in February 2007.

Pursuant to the terms of the insurance policy, at the end of each policy year, SCIF was permitted to audit ReadyLink's payroll records to determine the amount of wages that ReadyLink had paid to its employees that year, and to use that amount to determine the final premium owed. Workers' compensation insurers report the results of such audits to the Workers' Compensation Insurance Rating Bureau (WCIRB), which uses the data supplied to support its classification and rating systems. ( ReadyLink Healthcare, supra , 210 Cal.App.4th at p. 1169, 148 Cal.Rptr.3d 881.)⁴ SCIF conducted routine audits for ReadyLink's 2001, 2002, 2003, and 2004 policy years. In each of those years, SCIF did not question ReadyLink's use of the per diem payment system, thereby essentially permitting ReadyLink to exclude the per diem payments from its payroll calculation for purposes determining the amount of its premium. According to a declaration submitted by ReadyLink's Executive Vice President, during these policy years, SCIF paid out workers' compensation benefits to ReadyLink's injured employees and excluded the per diem amounts when calculating salary replacement.

3. SCIF's audit of the 2005 policy year and invoice for additional premiums based on the inclusion of per diem payments as payroll

SCIF began its audit of ReadyLink's 2005 policy year in January 2007. During the audit of the 2005 policy year, SCIF requested from ReadyLink information regarding its per diem program. A senior auditor in SCIF's "[S]pecial [R]isk [D]ivision" had noticed that ReadyLink was paying its nurses a minimum wage of approximately $6.75 an hour and providing them with unusually high stipulated per diem amounts. This senior auditor had conducted dozens of audits of nurse staffing agencies and registries and had never before seen a nurse staffing agency pay more than 50 percent of its remuneration to nurses in the form of per diem payments; nor had she seen a nurse staffing agency pay its nurses hourly wages that were significantly below the average hourly rate that was typically paid to nurses who were trained, licensed, and registered nurses in California. ( ReadyLink Healthcare, supra , 210 Cal.App.4th at 1170, 148 Cal.Rptr.3d 881.) The auditor questioned ReadyLink regarding its per diem payments and requested documentation to substantiate that the per diem payments met the standards for such payments set forth in the USRP. ReadyLink responded to SCIF's inquiries by stating that ReadyLink was in compliance with federal per diem guidelines. ReadyLink provided no additional documentation to SCIF regarding its per diem payment program.

SCIF provided ReadyLink with its final audit for the 2005 policy year in June 2007. The audit categorized ReadyLink's per diem payments to nurses during the policy year as payroll for reporting purposes, and included the per diem amounts in calculating ReadyLink's final premium for the policy year. SCIF determined that with the per diem payments included as payroll, ReadyLink owed more than $550,000⁵ in additional premium payments for the 2005 policy year.⁶

4. ReadyLink's appeal of SCIF's decision to include the per diem amount as payroll in calculating ReadyLink's 2005 premium to the Department of Insurance

ReadyLink disputed SCIF's decision to include the per diem amounts as...