Aids Healthcare Found. v. State Dep't of Health Care Servs.

241 Cal.App.4th 1327

194 Cal.Rptr.3d 425

AIDS HEALTHCARE FOUNDATION et al., Plaintiffs and Appellants,

v.STATE DEPARTMENT OF HEALTH CARE SERVICES et al., Defendants and Respondents.

B252710

Court of Appeal, Second District, Division 7, California.

Filed October 13, 2015

Law Office of Andrew F. Kim and Andrew F. Kim; AIDS Healthcare Foundation, Thomas A. Myersand Samantha Azulay for Plaintiffs and Appellants.

Kamala D. Harris, Attorney General, Julie Weng–Gutierrez, Senior Assistant Attorney General, Jennifer M. Kimand Kenneth K. Wang, Deputy Attorneys General, for Defendants and Respondents.

SEGAL, J.

INTRODUCTION

AIDS Healthcare Foundation and AHF Healthcare Centers (collectively AHF) appeal from the judgment of dismissal entered after the trial court sustained without leave to amend the demurrer by the California Department of Health Care Services and its director Toby Douglas (collectively the Department) to AHF's petition for a writ of administrative mandamus. AHF sought a writ directing the Department (1) to withdraw its order rejecting and remanding an administrative law judge's proposed decision on AHF's administrative claims against the Department, and (2) to adopt as the “Final Decision” certain portions of the administrative law judge's proposed decision and to reject other portions. The trial court concluded that AHF was not entitled to judicial review because it had failed to exhaust its administrative remedies and that there was no applicable exception to the exhaustion requirement. We conclude that the exhaustion requirement bars AHF's petition because AHF's administrative claim is not final and that the Department's administrative processes and procedures were legally adequate and did not violate the law. Therefore, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. The Contract

AHF had a contract with the Department to provide health care services in Los Angeles County to beneficiaries of CaliforniaMedical Assistance Program (Medi–Cal) suffering from acquired immune deficiencysyndrome. The contract stated that AHF would provide certain services to the Medi–Cal beneficiaries and receive payment based on the amount that Medi–Cal would have expended had it provided health care for a similar population through a fee-for-service delivery system.¹The Department also agreed to give AHF an incentive payment (called a “Savings Share”) of 50 percent of any savings that resulted from the arrangement. The contract also required the parties to resolve any disputes pursuant to the administrative hearing and review procedures described in Health and Safety Code section 100171.

B. The Administrative Proceedings

In 2009 a dispute arose between the parties over the Department's rates of payment to AHF for 2009 and 2010 and the Savings Share incentive payments owed to AHF for 2007 and 2008. The Department rejected AHF's claims. AHF appealed and asked the Department to conduct an administrative review hearing under Health and Safety Code section 100171.

The Department selected Administrative Law Judge (ALJ) Dwight V. Nelsen, an ALJ on the staff of the Department's administrative hearings and appeals office, to hear the appeal. ALJ Nelsen, acting as the sole hearing officer, conducted the hearing at the Department's hearing offices.

In December 2012 ALJ Nelsen issued a proposed decision, which ruled in favor of AHF in part and in favor of the Department in part. ALJ Nelsen recommended that the Department adopt his proposed decision as the Department's final decision.

Douglas, the Director of the Department, delegated the agency's authority to act on ALJ Nelsen's proposed decision to the Department's Chief ALJ Sharon Stevenson. In a February 15, 2013 letter to the Department and AHF, Chief ALJ Stevenson stated she was considering rejecting ALJ Nelsen's proposed decision and “either alternating it or remanding this matter for further hearing and a revised decision.” On March 1, 2013 Chief ALJ Stevenson issued an order entitled, “Rejection of Proposed Decision and Remand to Take Additional Evidence,” citing Government Code section 11517, subdivision (c)(2)(D).²The order remanded the matter to Department ALJ Patricia Freeman (ALJ Nelsen retired from the Department a week after he issued his proposed decision) to consider additional evidence and to conduct further proceedings.

On April 2, 2013 AHF wrote to Chief ALJ Stevenson objecting to her order. AHF pointed out that the Department's ALJ Nelsen had originally conducted the proceedings, and argued therefore that “agency itself” had heard the matter under Government Code section 11517, subdivision (b), not Government Code section 11517, subdivision (c).³AHF asserted that, because Chief ALJ Stevenson “did not hear any of the evidence” in the matter, under Government Code section 11517, subdivision (b), she did not have “any right to have any input into the decision” and therefore “lacked the power to issue the Rejection/Remand Order.” AHF asked the Department to adopt or “confirm” ALJ Nelsen's Proposed Decision as the Department's final decision.

C. The Trial Court Proceedings

On April 2, 2013, the same day AHF objected to Chief ALJ Stevenson's order, AHF filed a petition for a writ of administrative mandamus in the superior court. AHF sought an order directing the Department to withdraw Chief ALJ Stevenson's order and to adopt certain portions of ALJ Nelsen's proposed decision and to reject other portions. AHF argued that the Department had exceeded its jurisdiction and violated the Administrative Procedures Act (Gov. Code, § 11340 et seq.; APA) by using Department ALJ's to conduct proceedings and decide the matter. AHF further contended that, to the extent that the Department had jurisdiction, the proposed order was an abuse of discretion. AHF also argued that it was entitled to seek judicial review of the Department's proceedings because it had pursued unsuccessfully all available administrative remedies, and it was “not required to exhaust any remaining administrative remedy because the administrative process itself is the cause of the harm that AHF alleges....”

The Department filed a demurrer to the petition, arguing that AHF had “failed to exhaust their administrative remedies and obtain a final decision by the Department and the Director before seeking judicial relief.” The Department argued that, because the matter was still pending before ALJ Freeman, AHF's petition for judicial relief was premature. The Department also defended its practice of using Department ALJs to conduct administrative proceedings, arguing that the Department acted within its statutory authority under both the Health and Safety Code and the APA.

The trial court sustained the Department's demurrer without leave to amend. The court ruled that AHF had not stated a cause of action because the administrative decision was not final and therefore AHF had not exhausted its administrative remedies, and that there was “no exception [to] the exhaustion rule nor [was] there any substance to the futility argument because it [was] speculative.” Therefore, the court dismissed the petition. AHF timely appealed.

DISCUSSION

A. Standard of Review and Principles of Statutory Interpretation

“In reviewing an order sustaining a demurrer, we independently evaluate whether the operative complaint states facts sufficient to state a cause of action.” (Alborzian v. JPMorgan Chase Bank, N.A.(2015) 235 Cal.App.4th 29, 34, 185 Cal.Rptr.3d 84; see Zelig v. County of Los Angeles(2002) 27 Cal.4th 1112, 1126, 119 Cal.Rptr.2d 709, 45 P.3d 1171; Brown v. County of Los Angeles(2014) 229 Cal.App.4th 320, 322, 177 Cal.Rptr.3d 268.) Where, as here, the trial court sustained the demurrer without leave to amend, we determine whether there is a reasonable possibility that the plaintiff can cure the defect by amendment. (Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1100, 171 Cal.Rptr.3d 189, 324 P.3d 50.)

This appeal involves the interpretation of statutes in the Government Code and the Health and Safety Code. “Statutory interpretation is a question of law that we review de novo.” (Bruns v. E–Commerce Exchange, Inc.(2011) 51 Cal.4th 717, 724, 122 Cal.Rptr.3d 331, 248 P.3d 1185.) “In doing so, ‘it is well settled that we must look first to the words of the statute, “because they generally provide the most reliable indicator of legislative intent.” [Citation.] If the statutory language is clear and unambiguous our inquiry ends. “If there is no ambiguity in the language, we presume the Legislature meant what it said and the plain meaning of the statute governs.” [Citations.] In reading statutes, we are mindful that words are to be given their plain and commonsense meaning.... Only when the statute's language is ambiguous or susceptible of more than one reasonable interpretation, may the court turn to extrinsic aids to assist in interpretation. [Citation.]’ [Citation.]” (Kirby v. Immoos Fire Protection, Inc.(2012) 53 Cal.4th 1244, 1250, 140 Cal.Rptr.3d 173, 274 P.3d 1160.) These extrinsic or “secondary rules of construction” include “maxims of construction, which express familiar insights about conventional language usage; the legislative history; and the wider historical circumstances of a statute's enactment.” (Joannou v. City of Rancho Palos Verdes(2013) 219 Cal.App.4th 746, 752, 162 Cal.Rptr.3d 158.)

Finally, “[i]f the ambiguity is not resolved by these secondary rules of construction, we then apply reason, practicality, and common sense. [Citation.] When doing so, we must consider the potential consequences of a particular interpretation. This includes not just the words chosen by the Legislature, but also matters such as context, the problem to be remedied, the history of the times, legislation on the same subject, public policy and contemporaneous construction. [Citation.] These other matters are important because they elevate our analysis from an abstract exercise in semantics to the only reason we engage in the process at all—to determine the...