Tuesday, January 23, 2018

FYI: Cal App Ct (4th Dist) Upholds Denial of Class Cert, Rules Injunctive Claims Not Easier to Certify

The California Court of Appeals for the Fourth District recently affirmed an order denying class certification in a declaratory relief action because the plaintiff failed to establish ascertainability, predominance and superiority.

In so ruling, the Appellate Court held that California Code of Civil Procedure section 382 did not have an equivalent to Rule 23(b)(1)(A) or (b)(2) of the Federal Rules of Civil Procedures, and that the federal rule provided less onerous requirements for declaratory or injunctive relief actions than for damages.

A copy of the opinion is available at:  Link to Opinion

In November 2015, the plaintiff filed a complaint alleging that the defendant hospital overcharged for his minor child's emergency room care.  The plaintiff alleged that under the hospitals Conditions of Treatment/Admission agreement ("COTA"), which all guarantors of emergency care patients were required to sign, the hospital was authorized to charge "regular rates and terms" regardless of whether a patient was a Medicaid, privately insured, HMO, or self-pay patient. 

The plaintiff was a self-pay guarantor of his child's financial.  His bill of $9,831.34 was based on "Chargemaster" rates developed by the hospital, which contains thousands of different line items, relating to procedures, services and goods that are either bundled or specific.  The Chargemaster and the number of line items on it changes each year.

According to the plaintiff, all patients, regardless of category, were subject to the exact same pricing guarantee to pay "in accordance with the Hospital's regular rates and terms." 

However, the plaintiff alleged that each category of patients was charged differently because the Chargemaster was merely a reference point for negotiating contracts and pricing schedules with commercial insurance carriers and non-emergency care patients seeking elective treatment and services.  The plaintiff claimed that the pricing terms for the hospital's services were "inherently vague, ambiguous and meaningless." 

Because the COTA itself contained no pricing terms for the self-payment payments which were certain or readily identifiable, the plaintiff alleged that he was only required to pay the reasonable value of the hospital services and treatment rendered, not the arbitrary prices in the Chargemaster.

In short, the plaintiff claimed that his bill based on Chargemaster rates were "grossly excessive, unfair, and unreasonable."

The plaintiff brought this action on behalf of himself and a class of persons defined as follows:

The guarantors of all persons who within the last four years, had one or more "eligible patient hospital visits" to [the hospital's] emergency department.

For purposes of this class definition, an "eligible patient hospital visit" was defined as one for which "(1) the patient was billed at the hospital's full Chargemaster rates; (2) there have been no full writeoffs, discounts or adjustments to the full Chargemaster billing under [the hospital's] charity care policies; (3) the bill has not otherwise been waived or written off in full by [the hospital]; and (4) no payments for the hospital visit have been made by other than the guarantor, the patient or the patient's representatives."

The complaint sought the following declarations on behalf of the putative class:

(1) "a declaration . . . with respect to their payment obligations to [the hospital], including a determination of the construction and validity of the financial obligation provision of their [conditions of treatment/admission agreement ('COTA')] with [the hospital], specifically finding that [the hospital's COTA] contains an "open price" term, and does not permit [the hospital] to bill and demand payment from selfpay emergency care patients based upon its Chargemaster rates";

(2) "a declaration that they are liable to [the hospital], under [the COTA], for no more than the reasonable value of the treatment/services provided"; and

(3) "a declaration that [the hospital's] billing practices as they relate to Class members are unfair, unconscionable, and/or unreasonable."

The plaintiff filed a motion for class certification pursuant to Code of Civil Procedures section 382, "the equivalents of Rules 23(b)(1) and/or 23(b)(2) of the Federal Rules of Civil Procedure," or in the alternative, an order certifying a class based on a single issue pursuant to California Rules of Court, rule 3.765(b).

The trial court issued a ruling denying class certification.  In so ruling, the trial court determined that based on the facts of this case, the Federal Rules of Civil Procedure did not apply and therefore the analysis must be done under the California rule. 

Applying California case law, the trial court held that the (1) the class was not ascertainable because "to identify class members could not be accomplished without unreasonable expense or time"; (2) "common questions of fact do not predominate over individualized questions"; and (3) class certification "would not provide substantial benefits that would render proceeding as a class superior to the alternatives."  The trial court also rejected the argument "that an issue should be certified in this case pursuant to [California Rules of Court, rule] 3.765(b)."

The primary issue on appeal was whether California Code of Civil Procedure section 382 required a plaintiff in an action for declaratory relief to establish ascertainability, predominance and superiority as a prerequisite for obtaining class certification.

As you may recall, the authority for class action litigation in California is set forth in Code of Civil Procedure section 382, which provides that "when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all."

Additionally, "[t]he party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives".  In turn, "the community of interest requirement embodied three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class."  Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.

Moreover, the proponent of class certification must establish that there are substantial benefits from certification that render proceeding as a class superior to the alternatives.  See, e.g., Occidental Land, Inc. v. Superior Court (1976) 18 Cal.3d 355, 360.

In contrast, the Court noted, Rule 23 of the Federal Rules of Civil Procedure does not require that ascertainability, predominance and superiority be established to obtain certification in every type of case.  See Fed. R. Civ. P. 23.  As set forth in Rule 23, only if a class action is certified under Rule 23(b)(3) is the court required to make a finding similar to the predominance and superiority requirements under California law. 

However, the Appellate Court noted that while Rule 23 does not refer to an ascertainability requirement, some federal courts "have held that it is an implicit requirement of class certification."  See, e.g., Cole v. City of Memphis (6th Cir. 2016) 839 F.3d 530, 541.  On the other hand, the Appellate Court also noted that several federal circuits have held that ascertainability is not required when a class is certified under Rule 23(b)(2).  Id., at 542.

The plaintiff argued that the trial court should have applied the requirements in Rule 23(b)(1)(A) or (b)(2), because the complaint merely sought "a declaration as to the meaning of a single Contract provision" which would "interpret a few lines of [the hospital's COTA] on al class wide basis."  Therefore, the plaintiff argued that he was not required to establish Rule 23(b)(3) s requirements for ascertainability, predominance and superiority.

The Appellate Court rejected this argument because the California Supreme Court has "uniformly" required a plaintiff seeking class certification to establish ascertainability, predominance and superiority "in order to sustain any class action."  Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 704. 

Thus, the Appellate Court held that even when the plaintiff sought only declaration or injunctive relief, California case law followed the well-established requirements that require the movant to establish ascertainability, predominance and superiority as a prerequisite for obtaining class certification. 

Next, the plaintiff argued that the trial court's ruling that the class was not ascertainable was not supported by substantial evidence. 

In opposition to the class certification motion in the trial court, the hospital submitted an extensive declaration from a senior director of revenue cycle.  The declaration stated that "each patient account's history ha[d] to be manually evaluated individually to determine whether the rates collected and those that [were] outstanding [were] the full Chargemaster amounts or some other amount."

According to the declaration, this is because each patient may receive different discounts based on his or her unique circumstances.  For example, some patients may have insurance cover certain services while other services were not covered, or if an account is sent to collections, the vendor may have authority to provide a discount to encourage payment. 

Thus, the declaration concluded that the hospital's billing system cannot determine whether a patient or guarantor fell under the class definition without an individualized inquiry into hundreds of thousands of patient's records.

The plaintiff argued that his class definition was based solely on the hospital 's payment records, and therefore, no individualized review was required.  However, he cited no evidentiary support for this argument, and did not explain how the class definition would limit the inquiry with respect to the hospital's electronic database. 

Therefore, the Appellate Court held that the declaration provided substantial evidence to support the trial court's finding on ascertainability.

The plaintiff also argued that because his requested relief was limited to a simple contract interpretation question, the trial court was not required to determine the reasonable value of the hospital s services for him or any other class member.

However, in the Appellate Court's view, the trial court must determine whether the Chargemaster rates were reasonable in order to afford relief.  For instance, only if the Chargemaster rates did not represent the reasonable value of the hospital's services would there be any merit to the plaintiff's argument that the purported "open price item" in the COTA precluded the hospital from billing at its Chargemaster rates.

Relatedly, to issue a declaration that the hospital's Chargemaster rates were unconscionable, the trial court would be required to consider whether the Chargemaster rates represented the reasonable value of the hospital's services.  This created an unmanageable individualized factual inquiry that differs as to each class member and was unsuited to resolution in a class action proceeding.

The plaintiff then argued that interpretation of a form contract entered into by each of the class members was an appropriate subject for class treatment, because the meaning of the form contract was a common issue that predominated in this action. 

The Appellate Court disagreed.  Because of the specific nature of the declaratory relief in the complaint, resolving this case would require the trial court to do far more than simply interpret terms in the COTA. 

In fact, according to the Appellate Court, to issue a declaration that the hospital was not permitted to bill based on its Chargemaster rates and that its billing practices were unconscionable, the trial court would be required to decide whether each and every item on the hospital's Chargemaster represented the reasonable value of its services provided to individual patients in any given year.  That determination did not present a common issue on a class wide basis.

For this reason, the Appellate Court held that a class action was not the superior method for resolving this dispute.  As discussed above, to determine whether each of the Chargemaster rates received by the class member represented the reasonable value of the hospital's services would require the trial court to examine extensive evidence on the thousands of different services appearing on the Chargemaster, and the different services rendered to individual patient. 

Thus, the Appellate Court concluded that it would be much more manageable for the courts and litigants if each person who wished to challenge the reasonableness of a bill based on the Chargemaster rates bring an individual proceeding, where the evidence can be manageably limited to the specific services at issue.

Accordingly, the Appellate Court affirmed the order denying class certification.


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon




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