Arash Alborzi v. University of Southern California

Plaintiffs Arash Alborzi, M.D., and Arash Alborzi, M.D.,

Inc. sued defendants University of Southern California, Keck

School of Medicine of USC, and USC Verdugo Hills Hospital

(collectively, USC); as well as Concord Hospitalist Group and

Elevate Health Group. Alborzi and his corporation were part of a

panel of on-call physicians at Verdugo Hills Hospital. Plaintiffs

alleged that defendants entered into an illegal referral and

kickback scheme in which USC paid below-market rates for

hospitalist services from Concord, and Concord self-referred

patients to Elevate, which shared ownership with Concord.

Plaintiffs alleged that when Alborzi complained to management

at Verdugo Hills Hospital about the illegal scheme, the hospital

stopped referring patients to him and eventually dissolved the

on-call panel in retaliation. Plaintiffs’ causes of action include

violations of Health and Safety Code section 1278.5, a health care

whistleblower statute; Government Code section 12653, part of

the California False Claims Act; and Business and Professions

Code section 17200, et seq., the Unfair Competition Law.

USC demurred to plaintiffs’ complaint, asserting that

plaintiffs were required to exhaust all judicial remedies by filing

a petition for writ of mandamus under Code of Civil Procedure

section 1085 prior to filing an action for damages. The trial court

sustained the demurrer on that basis and entered judgment for

all defendants. We find that the trial court erred, because

plaintiffs were not required to exhaust judicial remedies before

asserting the causes of action they have alleged here.

USC asserted in the alternative that plaintiffs’ complaint

failed to allege facts sufficient to state a cause of action. On

appeal, plaintiffs argue that three of their six causes of action

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were sufficiently alleged. We find plaintiffs’ complaint alleged

sufficient facts to support causes of action for violations of Health

and Safety Code section 1278.5 and Business and Professions

Code section 17200, et seq., and therefore the demurrer should

have been overruled as to those claims. We find that plaintiffs’

cause of action for violation of Government Code section 12653

failed to allege sufficient facts to state a cause of action, but leave

to amend was warranted. Finally, we find that plaintiffs have

abandoned the three causes of action they did not address on

appeal. We therefore reverse the judgment, and remand the

action with directions to enter a new order sustaining the

demurrer in part and overruling the demurrer in part.

FACTUAL AND PROCEDURAL BACKGROUND

A. Plaintiffs’ allegations

Plaintiffs filed their initial complaint on December 26,

2018. USC filed a demurrer and motion to strike. Before the

scheduled hearing, plaintiffs filed a first amended complaint

(FAC) alleging the same six causes of action. The FAC is the

operative complaint for purposes of appeal, and we focus on the

allegations in that version.

Plaintiffs alleged that Alborzi is a physician specializing in

infectious disease, and he owns Arash Alborzi, M.D., Inc., which

“is comprised of other duly licensed physicians who also

specialize in infectious disease.” Alborzi and all members of

Arash Alborzi, M.D., Inc. “have medical staff privileges at

Verdugo Hills Hospital [(VHH)], which is owned by the

University of Southern California.” Plaintiffs were on the

infectious disease (I.D.) on-call panel at VHH. “When patients

came to VHH and required immediate emergency infectious

disease treatment, were admitted at VHH and required acute

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stabilizing infectious disease treatment, or any time a patient

required an infectious disease specialist to stabilize their

condition, the respective patient would be assigned to an

infectious disease specialist from the I.D. call panel.” The

physicians on the I.D. call panel were on a rotating schedule,

typically created months in advance, which “indicated which

weeks the respective specialist had to be available, at any hour of

the day, to see assigned patients.” The same on-call panel system

existed for other specialties, such as nephrology and anesthesia.

Plaintiffs alleged that “[s]tructured call panels are common

within hospitals and are required for all hospitals who receive

payment for patient services from government sources” pursuant

to state and federal law, including VHH. Plaintiffs alleged that

on-call panels “assist in preventing patient-endangering selfreferrals, bribes, and kickbacks because patients are assigned to

physicians based solely on the call panel schedule.”

Plaintiffs alleged on information and belief that in July

2017, “Defendant[ ] Concord entered into an exclusive contract

with Defendant VHH to provide hospitalist services to every

patient who presented to VHH without an assigned primary care

provider.” They alleged that the contract was “below market

value for comparable hospitalist services.” Plaintiffs alleged that

Concord was owned by three physicians: Dr. Narbeh Tovmassian,

Dr. Garen Derhartunian, and Dr. Devinder Ghandi. Tovmassian

and Derhartunian also owned defendant Elevate, which “provides

medical services including, but not limited to, primary care and

nursing home services.” Plaintiffs alleged that Concord referred

VHH patients to Elevate, and that “Defendant Concord benefits

financially from self-referring Defendant VHH patients to

Defendant Elevate because the same physicians own Defendant

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entities Concord and Elevate.” Plaintiffs alleged that this

constituted an improper kickback arrangement in violation of the

federal anti-kickback statute (42 U.S.C. § 1320a-7b(b)), and it

was a self-referral arrangement that violated state and federal

law. (42 U.S.C. § 1395nn(a)(1), Bus. & Prof. Code, §§ 650.01,

650.02, Health & Saf. Code, § 445, et seq.)

According to plaintiffs, beginning in August 2017 the

number of patients assigned to them via the I.D. call panel

“slowed significantly,” and “an unusual number of patient

consultations began to be referred to two specific infectious

disease specialists, Dr. Hun and Dr. Maslow.” Plaintiffs alleged

on information and belief that “Dr. Maslow entered into a

financial arrangement with Dr. Hun wherein Dr. Maslow

receives a percentage of Dr. Hun’s reimbursements for medical

services. This is a kickback arrangement in violation of the AntiKickback Statute.” Plaintiffs also alleged that Dr. Hun was

“employed either directly or as a contractor” by Elevate, and

“Defendant Concord benefits financially from self-referring

Defendant VHH patients to Dr. Hun for infectious disease

consultations” because Elevate employed Hun.

Plaintiffs alleged that beginning in December 2017, Alborzi

became concerned about the “increasingly slowing patient

assignments” from the I.D. call panel, since “December is the

beginning of flu season, and yet patient assignments from the

I.D. call panel were suspiciously low. This is when Dr. Alborzi

first became aware” of the defendants’ financial arrangements.

Between December 2017 and June 2018, Alborzi “expressed

concerns . . . regarding patient safety, the presence of illegally

incentivized decisions about patient care by and among

defendants, and the inability to practice medicine” resulting from

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defendants’ “financial arrangements” and “the non-use, or

misuse, of the on-call panel system.” Alborzi reported his

concerns to Keith Hobbs, Chief Executive Officer of VHH, in

February and April 2018. He also reported his concerns to Dr.

Armand Dorian, Chief Medical Officer of VHH, in May 2018. In

July 2018, plaintiffs received notice that the I.D. call panel had

been terminated entirely. Plaintiffs alleged that termination of

the on-call panel “was a retaliatory act” by defendants because

Alborzi had reported his concerns about the “illegal financial

arrangements” among defendants.

Plaintiffs alleged six causes of action in the FAC. In their

first cause of action against USC, plaintiffs alleged violations of

Health and Safety Code section 1278.5 (section 1278.5), which

bars retaliation against whistleblowers in healthcare professions.

Plaintiffs alleged USC stopped providing plaintiffs with panel

consultations and eventually terminated the I.D. call panel in

retaliation against Alborzi for reporting his concerns about the

financial arrangements among defendants. Plaintiffs asserted

that Alborzi’s reports concerned patient safety and constituted

protected activity under section 1278.5. They alleged that

defendants dissolved the I.D. call panel “in an attempt to injure

Plaintiff[s] financially,” and requested punitive damages.

In their second cause of action against USC, plaintiffs

alleged violations of Government Code section 12653, part of the

California False Claims Act (CFCA, §§ 12650, et seq.), which

provides whistleblower protections for employees. Plaintiffs

contended they “were, and continue to be, discriminated against .

. . by receiving diminished patient referrals,” and they were

“singled out because they were not involved in the illegal

financial arrangements described, but infectious disease

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specialists who were, such as Dr. Hun, received increased patient

referrals.” Plaintiffs further alleged that USC’s “discriminatory

conduct towards Plaintiffs was, in part, a retaliatory action

against Dr. Alborzi for his efforts to stop violations under the

California False Claims Act.”

In their third cause of action for wrongful discipline against

USC, plaintiffs alleged that “[a]s a member of the medical staff at

VHH, Dr. Alborzi had an implied in fact contract with Defendant

VHH not to impose disciplinary measures except for good causes

[sic].” VHH “violated that contract” when it “stopped providing

Dr. Alborzi with patient consultations and dissolved the

infectious disease on-call panel as a discipline for reporting illegal

activities.”

In plaintiffs’ fourth cause of action for intentional

interference with prospective economic advantage, plaintiffs

alleged that all defendants “intentionally interfered with

Plaintiffs[’] ability to practice medicine and Plaintiffs’ ability to

provide services to patients at Verdugo Hills Hospital by entering

into illegal financial arrangements and dissolving the infectious

disease specialist on-call panel.”

Plaintiffs’ fifth cause of action was for unfair business

practices under the unfair competition law (UCL), Business and

Professions Code section 17200, et seq., against all defendants.

Plaintiffs alleged that defendants violated Business and

Professions Code section 650, et seq.; Health and Safety Code

section 445; Welfare and Institutions Code section 14107.2; and

Business and Professions Code section 2273, subdivision (a), “by

participating in financial arrangements” including “inducing

illegal remuneration, bribes, fee-splitting, kickbacks, and self-

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referrals.” Plaintiffs asserted that these actions constituted

“unlawful, unfair, and fraudulent business practices.”

In their sixth cause of action for negligence against all

defendants, plaintiffs alleged that a hospital and its medical staff

have a duty to “provide patients safe and competent clinical

care.” A hospital and medical staff rely on each other to

accomplish this purpose, therefore “Defendants owed a duty of

care to Plaintiffs because Plaintiffs are physicians on the medical

staff at VHH.” Defendants breached that duty by participating in

the “untoward financial arrangements,” interfering with Alborzi’s

“right to practice medicine.”

Plaintiffs sought compensatory damages, including mental

and emotional distress; double back pay plus interest; punitive

damages; civil penalties; injunctive relief; costs; and attorney

fees.

B. USC’s demurrer

USC filed a demurrer to the FAC, asserting that each claim

failed to allege facts sufficient to state a cause of action, and each

was unintelligible. (Code Civ. Proc., § 430.10, subds. (e), (f).)1

USC asserted that plaintiffs “were required to petition for and

obtain a writ of mandamus under Code of Civil Procedure section

1085 to challenge [VHH’s] decision to contract exclusively for

Hospitalist services.” It argued that it had a “settled right,

1 Concord and Elevate also jointly demurred to the FAC,

asserting that plaintiffs’ fourth, fifth, and sixth claims failed to

allege facts sufficient to state a cause of action and were

unintelligible. (Code Civ. Proc., § 430.10, subds. (e), (f).) Their

demurrer was scheduled to be heard later than USC’s, and

because the court sustained USC’s demurrer and dismissed the

case, Concord and Elevate’s demurrer was never heard.

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confirmed over decades of unbroken California case law, to

contract exclusively with a physician group to staff a particular

hospital service.” USC asserted that VHH’s “decision to contract

with Concord and to dissolve the on-call panel were quasilegislative rules because their application was not limited to Dr.

Alborzi or his group’s physicians.” Because this decision “would

be applicable to any physician who practiced at VHH,” it was a

quasi-legislative decision, as opposed to a quasi-judicial action

impacting a particular doctor. USC argued that quasi-legislative

actions must be challenged by a writ of mandate, and could not

be challenged in an action for damages.

USC relied on cases such as Lewin v. St. Joseph Hospital of

Orange (1978) 82 Cal.App.3d 368 (Lewin), which we discuss in

more detail below. Briefly, in Lewin a physician challenged the

manner in which a nonprofit hospital staffed its chronic renal

hemodialysis facility. The hospital argued that its staffing

decision was “quasi-legislative” in nature, and therefore it could

only be challenged in a proceeding for traditional mandate under

Code of Civil Procedure section 1085. The Court of Appeal

agreed, holding that “the limited judicial review applicable to the

quasi-legislative actions of a governmental administrative agency

is also appropriately applied to judicial review of rule-making or

policy-making actions of a nonprofit hospital corporation.” (Id. at

p. 384.) The court reasoned that “[t]he operation and

administration of a hospital involves a great deal of technical and

specialized knowledge and experience” (ibid.), so courts “must

guard against unduly interfering with the board’s autonomy by

substituting judicial judgment for that of the board.” (Id. at p.

385.) USC asserted that under Lewin and other cases, “Plaintiffs’

claims for damages do not provide an alternative route to

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invalidate [VHH’s] contracting decisions. The law is clear that a

plaintiff alleging torts arising from improper agency action must

first have such action declared invalid in a mandamus action

before it can seek or recover from any torts.”

USC also argued that the individual causes of action in the

FAC failed. For the first cause of action, USC argued that

because it did not have a duty to maintain an infectious disease

on-call panel, the decision to end the on-call panel could not

support a cause of action under section 1278.5. In addition,

because the decision affected every doctor on the on-call panel, it

could not be deemed retaliatory against plaintiffs. As for the

second cause of action under the CFCA, defendants asserted that

plaintiffs did not allege facts suggesting that USC submitted any

false or fraudulent claims. USC argued that the third cause of

action for wrongful discipline failed because such a claim was

applicable only to employers and employees, and plaintiffs were

not employees of USC. Regarding the fourth cause of action for

intentional interference with prospective economic advantage,

USC argued that plaintiffs failed to allege an existing

relationship with a third party or any interference in that

relationship. USC asserted that the facts alleged in plaintiffs’

fifth cause of action for unfair competition were “insufficient to

notify [VHH] which prong of the UCL it is charged to have

violated.” Finally, USC contended that plaintiffs’ sixth cause of

action for negligence failed because USC did not owe a duty of

care to plaintiffs.

C. Opposition and reply

In their opposition, plaintiffs argued that section 1278.5 did

not require a claimant to exhaust administrative remedies, so it

was irrelevant whether VHH’s exclusive contract for services was

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quasi-legislative. Plaintiffs also asserted that the relevant issue

“is not whether the decision to dissolve the on-call panel was

quasi-judicial or quasi-legislative, it is whether the decision to

dissolve the on-call panel was retaliatory and aimed at Dr.

Alborzi.” They further asserted that “whether the decision

resulted in collateral damage to other physicians is

inconsequential.” Plaintiffs also argued that the facts alleged in

the FAC were sufficient to support each cause of action.

Plaintiffs requested leave to amend the FAC if the court were to

sustain the demurrer.

In reply, USC argued that plaintiffs ignored the settled law

of Lewin and similar cases, and although plaintiffs characterized

their claims as involving “patient safety,” they were actually only

personal claims. USC asserted that “[s]ection 1278.5 is

concerned with—and only applies to prohibit—retaliatory action,”

and “[q]uasi-legislative [action] is by definition not retaliatory.”

USC also argued that plaintiffs “give little to no effort [to

address] any of the arguments raised in the Demurrer with

respect to the second through sixth causes of action.” USC

further argued that leave to amend should be denied, because

plaintiffs had already attempted and failed to remedy the defects

in their pleadings.

D. Court ruling

The court issued a tentative ruling sustaining the demurrer

because plaintiffs failed to bring a mandamus action. At the

hearing, plaintiffs’ counsel asserted that although USC argued its

decision to dissolve the I.D. call panel was quasi-legislative action

that affected all doctors, “[i]n our first amended complaint, we

don’t allege that. We state that it’s being allied [sic] to Dr.

Alborzi and not to those who are involved in the fraudulent

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kickback scheme. That’s an issue of fact, not an issue of law and

shouldn’t be subject to a demurrer.” Plaintiffs’ counsel added,

“Whether this is or isn’t a legislative act is an issue of fact,” and

noted that plaintiffs “don’t know how [the] decision came about

and whether it was legislative or not.” The court noted that a

mandamus action would allow plaintiffs to do discovery on that

issue. After discussing the relevant case law with the parties’

counsel, the court stated that it would sustain the demurrer.

In the tentative ruling the court adopted as its final order,

the court recounted the parties’ arguments and stated, “The

Court finds Defendants’ arguments persuasive and finds that

Plaintiffs have failed to and cannot allege that they have

successfully challenged Defendants’ decision under the

mandamus procedure. The cases cited by Plaintiffs are all

distinguishable in that they hold that quasi-judicial decisions

need not be successfully challenged prior to bringing a suit for

retaliation. As noted by Defendants, however, a quasi-legislative

decision is not targeted at a particular individual, but rather is a

rule made applicable to all relevant parties and to all future

situations. Thus, the reasoning in the cases cited by Plaintiff[s]

is inapplicable here.” The court sustained USC’s demurrer

without leave to amend and dismissed the case with prejudice as

to all defendants.

The court entered judgment in favor of all defendants on

June 24, 2019. Plaintiffs timely appealed.

DISCUSSION

Plaintiffs contend on appeal that the trial court erred by

holding that VHH’s decision to disband the I.D. call panel was

quasi-legislative based on the facts alleged in the FAC, and by

holding that plaintiffs were barred from bringing this action due

13

to their failure to file a petition for writ of mandamus under Code

of Civil Procedure section 1085. As discussed below, we agree on

both issues, and reverse the trial court’s ruling. We then address

the parties’ contentions as to whether plaintiffs alleged sufficient

facts to support their causes of action.

On appeal after a demurrer has been sustained, we

determine de novo whether the complaint states facts sufficient

to constitute a cause of action. (Loeffler v. Target Corp. (2014) 58

Cal.4th 1081, 1100.) We “‘assume the truth of the complaint’s

properly pleaded or implied factual allegations.’” (Ibid.) “It is

plaintiffs’ burden to show either that the demurrer was sustained

erroneously or that the trial court’s denial of leave to amend was

an abuse of discretion.” (Keyes v. Bowen (2010) 189 Cal.App.4th

647, 655.)

A. Quasi-legislative action

The trial court impliedly found that USC’s actions were

quasi-legislative, and that as a result, plaintiffs were required to

exhaust judicial remedies by bringing a petition for writ of

mandamus rather than filing a civil action. The court embraced

USC’s reasoning that staffing decisions affecting an entire

department—such as dissolving the I.D. call panel—are quasilegislative. However, USC’s attempts to cast VHH’s decision as a

run-of-the-mill staffing decision contradict the facts alleged in the

FAC. Plaintiffs alleged that VHH’s action was targeted at

plaintiffs and was retaliatory, and we “take the allegations of the

operative complaint as true.” (Aryeh v. Canon Business

Solutions, Inc. (2013) 55 Cal.4th 1185, 1191.) Because USC’s

arguments rely on factual conclusions unsupported by the record,

the demurrer should have been overruled.

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1. Hospital staffing policies can be quasi-legislative

“[T]he terms ‘quasi-legislative’ and ‘quasi-judicial’ are used

to denote . . . differing types of action. Quasi-legislative acts

involve the adoption of rules of general application on the basis of

broad public policy, while quasi-judicial acts involve the

determination and application of facts peculiar to an individual

case.” (Beck Development Co. v. Southern Pacific Transportation

Co. (1996) 44 Cal.App.4th 1160, 1188.) “‘Generally speaking, a

legislative action is the formulation of a rule to be applied to all

future cases, while an adjudicatory act involves the actual

application of such a rule to a specific set of existing facts.’”

(Major v. Memorial Hospitals Assn. (1999) 71 Cal.App.4th 1380,

1398 (Major).)

In a hospital setting, if a physician’s individual medical

staff privileges have been denied, suspended, or terminated

because the physician failed to comply with established

standards, “that administrative decision is classified as ‘quasijudicial’ and review is by administrative mandamus.” (Hay v.

Scripps Memorial Hospital (1986) 183 Cal.App.3d 753, 758

(Hay).) “However, where the physician has had privileges denied

or curtailed because of the implementation of a ‘policy’ of the

hospital, the administrative action is classified as ‘quasilegislative’ and reviewable by traditional mandamus.” (Ibid.)

When quasi-legislative acts are reviewed by traditional or

ordinary mandamus under Code of Civil Procedure section 1085,

“‘the inquiry is limited to whether the decision was arbitrary,

capricious, or entirely lacking in evidentiary support.’” (McGill v.

Regents of University of California (1996) 44 Cal.App.4th 1776,

1785.)

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In Lewin, supra, the Court of Appeal found that “the

limited judicial review” applicable to traditional mandamus is

appropriate for the “judicial review of rule-making or policymaking actions of a nonprofit hospital corporation.” (82

Cal.App.3d at p. 384.) The court explained, “The operation and

administration of a hospital involves a great deal of technical and

specialized knowledge and experience, and the governing board of

a hospital must be presumed to have at least as great an

expertise in matters relating to operation and administration of

the hospital as any governmental administrative agency with

respect to matters committed to its authority.” (Ibid.) Thus, “[a]

managerial decision concerning operation of the hospital made

rationally and in good faith by the board to which operation of the

hospital is committed by law should not be countermanded by the

courts unless it clearly appears it is unlawful or will seriously

injure a significant public interest.” (Id. at p. 385.)

2. Plaintiffs did not allege quasi-legislative action

USC asserts that dissolution of the on-call panel at VHH

was a quasi-legislative policy decision that could be challenged

only by ordinary mandamus under Code of Civil Procedure

section 1085, thus barring all of plaintiffs’ causes of action.

Plaintiffs disagree, asserting that they alleged USC’s “policy

decision” to dissolve the on-call panel was merely pretext, not a

legitimate quasi-legislative decision, and the trial court erred by

disregarding those allegations in the FAC. We agree with

plaintiffs.

Plaintiffs alleged that defendants entered into an illegal

kickback scheme, Alborzi complained about it, and USC dissolved

the on-call panel in retaliation, thus blocking plaintiffs from

receiving further referrals. USC cites to “settled law” that

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hospital decisions affecting staffing—compared to quasi-judicial

decisions that affect individuals—are quasi-legislative. It argues

that “courts have uniformly determined that hospital operational

decisions of general application are quasi-legislative as a matter

of law.” USC cites five cases in support, none of which supports

such a finding under circumstances similar to those in this case.

To the contrary, the cases USC cites involve trials or other

proceedings in which courts considered evidence before

determining that the hospitals’ staffing decisions were quasilegislative.

USC relies on Lewin, supra, 82 Cal.App.3d 368. In that

case, the respondent hospital, St. Joseph Hospital of Orange,

operated renal hemodialysis facilities on a “closed staff” basis,

meaning that the facilities were used by a single group of

nephrologists associated with the hospital. (Id. at pp. 375-376)

Dr. Lewin, a local physician, requested privileges to use the

hemodialysis units. The hospital approved his request regarding

the acute hemodialysis unit, but denied it as to the chronic

hemodialysis unit. Dr. Lewin filed a petition for writ of mandate,

alleging that the hospital had a duty to allow him to use the unit

and the hospital’s exclusive contract with the limited group of

physicians interfered with Dr. Lewin’s ability to practice his

profession. (Id. at pp. 380-381.)

The issue proceeded to a trial. Evidence discussed in the

Court of Appeal’s opinion includes the history of the hemodialysis

unit (Lewin, supra, 82 Cal.App.3d at p. 376); information about

the operation of the unit, including its billing practices, staffing,

and daily operations (id. at pp. 377-378); the number of chronic

patients treated in the unit (id. at p. 378); information about Dr.

Lewin’s education, medical practice, and privileges at various

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hospitals (ibid.); detailed descriptions about Dr. Lewin’s

communications with St. Joseph Hospital’s executive committee

about his request to use the hemodialysis unit (id. at pp. 378-

380); the recommendation by the hospital’s medical committee,

which was reviewed and approved by the executive committee,

whose recommendation was then approved by the board of

trustees (id. at p. 379); and records of two separate hearings on

the issue in which relevant parties debated whether the units

should continue to be operated on a “closed staff” basis (id. at pp.

379-380.)

The Court of Appeal in Lewin considered this evidence in

finding that “The hearing held by the Executive Committee on

October 16, 1975 and the resulting decision of the Executive

Committee and the Board of Trustees to continue operating the

chronic hemodialysis unit on a ‘closed-staff’ basis were clearly

‘quasi-legislative’ in nature.” (Lewin, supra, 82 Cal.App.3d at p.

383.) The court gave several reasons for this finding, including

that “[t]he operation and administration of a hospital involves a

great deal of technical and specialized knowledge and experience”

(id. at p. 384), so courts “must guard against unduly interfering

with the board’s autonomy by substituting judicial judgment for

that of the board.” (Id. at p. 385.)

USC also relies on Mateo-Woodburn v. Fresno Community

Hospital & Medical Center (1990) 221 Cal.App.3d 1169 (MateoWoodburn), in which several anesthesiologists challenged a

decision by the Fresno Community Hospital (FCH) board of

trustees “to alter the system of delivery of anesthesia services at

the hospital from a rotating ‘open staff’ to a ‘closed’ system.” (Id.

at pp. 1174-1175.) Following a trial, the superior court denied

the physicians’ request for a permanent injunction, dissolved a

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preliminary injunction, denied the physicians’ request for a writ

of mandate, and decided the cause of action for declaratory relief

in favor of the defendants. (Id. at p. 1174 & fn. 2.)

In the opinion affirming the judgment, the Court of Appeal

discussed the bylaws governing the medical staff at FCH,

including the formulation and approval of the bylaws (MateoWoodburn, supra, 221 Cal.App.3d at p. 1175); the manner in

which the executive committee coordinated the medical staff

departments (id. at p. 1176); how the anesthesiologists were

scheduled for surgeries, including problems with the scheduling

(id. at pp. 1176-1178); and the medical staff’s request to change

anesthesiology from an open to a closed staffing system (id. at p.

1187). The court further discussed the hospital board’s procedure

in considering and approving the change, including

implementation of a task force to study the proposal (id. at p.

1178); board meetings and administrative hearings considering

the changes, including transcripts from those meetings and

hearings (id. at pp. 1178-1180); and communication regarding the

hospital’s contract with a new entity to manage the department

of anesthesia and the terms of the contract itself (id. at pp. 1180-

1181). The court found that based on the evidence, “the policy

decision by FCH to go from an open to a closed system of delivery

of anesthesia services was not irrational, arbitrary, contrary to

public policy or procedurally unfair.” (Id. at p. 1184.)

USC also cites Hay, supra, 183 Cal.App.3d 753, in which

“Dr. Hay requested clinical privileges to perform dilation and

curettage (D & C) procedures” at a local hospital, and his request

was denied due to a “policy that a physician must satisfy a

minimum requirement of completion of a residency in obstetrics

and gynecology (OB-GYN) in order to receive D & C privileges” at

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the hospital. (Id. at pp. 755-756.) Hay petitioned for a writ of

mandamus, which was denied. The Court of Appeal’s opinion

affirming the judgment does not make clear whether the superior

court held a full trial. Nevertheless, the Court of Appeal

discussed Dr. Hay’s background and qualifications (id. at p. 756);

his privileges at other hospitals (ibid.); the procedure followed

after Dr. Hay requested privileges at the hospital, including the

recommendations of the family practice supervisory committee

and the OB-GYN supervisory committee (id. at p. 757); the votes

of the executive medical committee and surgery supervisory

committee (ibid.); Dr. Hay’s appeal to a judicial review hearing

committee and its report (id. at pp. 757-758); and Dr. Hay’s

appeal to the hospital’s board of trustees (id. at p. 758.).

Citing Lewin, the court in Hay stated, “[W]here the

physician has had privileges denied or curtailed because of the

implementation of a ‘policy’ of the hospital, the administrative

action is classified as ‘quasi-legislative’ and reviewable by

traditional mandamus.” (Hay, supra, 183 Cal.App.3d at p. 758.)

The court discussed the reasoning behind the hospital’s

requirement for specific qualifications, and found that it was “not

irrational for a hospital to require [certain] training as a

minimum qualification for all obstetrical-gynecological surgeries.”

(Id. at p. 761.) The court concluded that the hospital’s policy

“does not violate public policy and is not substantively irrational

or unlawful.” (Id. at p. 762.)

USC also relies on Major, supra, 71 Cal.App.4th 1380,

which followed what the Court of Appeal characterized as a

“lengthy court trial.” In that case, the defendant hospital group

changed its anesthesiology departments from an open staff

system to a closed system with an exclusive provider. The new

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provider did not offer subcontracts to several physicians who

formerly practiced as part of the hospital’s open staff, and the

physicians sued “based on multiple theories, including alleged

violations of the Unruh Civil Rights Act (Civ. Code, § 51), breach

of contract, civil conspiracy, and tortious interference with

plaintiffs’ professional business relationships.” (Id. at p. 1384.)

The trial court found in favor of the defendants, and the plaintiff

physicians appealed.

In an extensive fact section, the Court of Appeal discussed

the hospital’s medical staff bylaws (Major, supra, 71 Cal.App.4th

at pp. 1386-1387); staffing and staffing problems within the

anesthesiology department (id. at pp 1387-1392); investigation of

the department’s issues by a medical executive committee and

development of a subcommittee to consider potential solutions

(id. at pp. 1392-1395); adoption of the contract with the exclusive

anesthesiology provider (id. at pp. 1395-1396); and

communication to the plaintiff physicians that they had not been

selected as subcontractors (id. at p. 1397). After discussing the

evidence and applicable legal authority, the court stated, “We

conclude that Memorial Hospitals’ decision to close the

anesthesiology department was quasi-legislative, since it was not

directed at any specific physician or group of physicians. Rather,

it was based on a genuine concern about the overall function of

the anesthesiology department and directed at improving the

quality of patient care provided by that department.” (Id. at pp.

1410-1411.)

Finally, USC cites Abrams v. St. John’s Hospital & Health

Center (1994) 25 Cal.App.4th 628 (Abrams), which considered

“the enforceability of an agreement between a hospital and a

member of its medical staff where the member has contracted

21

away due process hearing rights otherwise afforded him or her by

existing hospital and medical staff bylaws.” (Id. at p. 631.) The

plaintiff filed a complaint alleging causes of action for breach of

contract, slander, negligent misrepresentation, and other causes

of action, and in connection with the breach of contract causes of

action, requested preliminary and permanent injunctions. (Id. at

p. 635.) The trial court denied the plaintiff’s request for a

preliminary injunction, and the Court of Appeal affirmed. The

court relied on Mateo-Woodburn in holding that the plaintiff was

not entitled to a hearing before his contractual rights and staff

rights could be terminated. (Id. at p. 638.)

Although USC is correct that these cases hold that a

hospital’s well-reasoned decision to change staffing in an entire

department may be deemed quasi-legislative, none of these cases

decided such issues at the pleadings stage or without

consideration of the manner in which the hospital reached its

decision. To the contrary, each case considered extensive

evidence demonstrating the hospitals’ staffing issues, the

procedures employed in changing the staffing plan or

implementing physician requirements, and the hospitals’ reasons

for establishing the standards or scheduling it did. As noted

above, the court in Lewin stated that it was reasonable to treat

hospital boards’ staffing decisions as quasi-legislative because of

the technical and specialized knowledge and experience required

for operating a hospital. (Lewin, supra, 82 Cal.App.3d at p. 384.)

Here, by contrast, there is no indication that VHH’s staffing

decisions were even made by a board, or that the decision

involved legitimate considerations about the operation or

administration of VHH. In fact, plaintiffs have alleged that the

decision did not involve legitimate concerns about the need for

22

infectious disease specialists, that it undermined patient care,

and it was done to cover up an illegal kickback scheme. The trial

court erred in ignoring plaintiffs’ factual allegations in deciding

the demurrer.

B. Plaintiffs’ claims were not barred by their failure to

exhaust judicial remedies.

USC also argues that there is a “longstanding rule

requiring exhaustion of judicial remedies” regarding hospitals’

quasi-legislative actions. The trial court agreed, holding that

plaintiffs “cannot allege that they have successfully challenged

Defendants’ decision under the mandamus procedure.” Even

assuming for the sake of argument that the defendants’ actions

could be deemed quasi-legislative, this position is not supported

by the authorities USC cites. The doctrine of exhaustion of

judicial remedies does not apply under the facts alleged in the

FAC, nor were plaintiffs required to exhaust judicial remedies on

their whistleblower causes of action.

“Under the doctrine of exhaustion of judicial remedies,

‘[o]nce a[n administrative] decision has been issued, provided

that decision is of a sufficiently judicial character to support

collateral estoppel, respect for the administrative decisionmaking

process requires that the prospective plaintiff continue that

process to completion, including exhausting any available judicial

avenues for reversal of adverse findings. [Citation.] Failure to do

so will result in any quasi-judicial administrative findings

achieving binding, preclusive effect and may bar further relief on

the same claims.” (Runyon v. Board of Trustees of California

State University (2010) 48 Cal.4th 760, 773 (Runyon).) Thus, the

doctrine of exhaustion of judicial remedies applies where “there

has been an adjudicatory, quasi-judicial decision in accordance

23

with established public or private procedures,” and “the prior

administrative proceedings possessed the requisite ‘judicial

character’ such that they yielded decisions or findings that could

later be given preclusive effect.” (Y.K.A. Industries, Inc. v.

Redevelopment Agency of City of San Jose (2009) 174 Cal.App.4th

339, 361 (Y.K.A. Industries).) The doctrine is “a form of res

judicata, of giving collateral estoppel effect to the administrative

agency’s decision, because that decision has achieved finality due

to the aggrieved party’s failure to pursue the exclusive judicial

remedy for reviewing administrative action.” (Briggs v. City of

Rolling Hills Estates (1995) 40 Cal.App.4th 637, 646 [emphasis in

original].)

The doctrine of exhaustion of judicial remedies does not

apply under the circumstances alleged by plaintiffs. First, “an

employee seeking relief under . . . Government Code section

12653 is not required to exhaust judicial remedies by filing a

petition for a writ of mandamus before filing a civil action.”

(Taswell v. Regents of University of California (2018) 23

Cal.App.5th 343, 362 (Taswell).) For this reason alone, the trial

court erred in sustaining the entire demurrer for plaintiffs’

failure to exhaust judicial remedies.

Second, the exhaustion of judicial remedies doctrine does

not apply under either party’s theory of the case. Plaintiffs have

not contended that any administrative procedure was followed.

Thus, based on the facts alleged, there was no “administrative

decisionmaking process” requiring plaintiffs to “continue that

process to completion.” (Runyon, supra, 48 Cal.4th at p. 773.)

Moreover, USC insists that any staffing decision at VHH was

quasi-legislative, not quasi-judicial, so there is no indication that

there were “prior administrative proceedings” that possessed

24

“judicial character.” (Y.K.A. Industries, supra, 174 Cal.App.4th

at p. 361.)

Nevertheless, USC argues, “As it relates to quasilegislative action, courts are clear that a physician must first set

aside the hospital’s decision through ordinary mandamus, despite

any disparate impact on that particular physician.” In support of

this statement, USC string-cites eight cases, including Lewin,

Mateo-Woodburn, Hay, and Abrams, discussed above, none of

which discusses exhaustion of other remedies or requires a

plaintiff’s challenge to take a particular form.

USC also cites Centeno v. Roseville Community Hospital

(1979) 107 Cal.App.3d 62, in which the defendant hospital barred

the plaintiff physician from using the radiology facilities at the

hospital after contracting with an exclusive provider. The

plaintiff physician filed a complaint seeking “a declaratory

judgment, injunctive relief and damages.” (Id. at p. 65.) After a

bench trial, the court entered judgment for the hospital on all

causes of action. (Ibid.) The Court of Appeal affirmed the

judgment on the merits, and did not address any requirement

that the physician first seek a writ of mandamus. USC also

relies on Unnamed Physician v. Board of Trustees of Saint Agnes

Medical Center (2001) 93 Cal.App.4th 607, which discussed a

physician’s failure to exhaust administrative remedies following a

quasi-judicial hearing before filing a petition for writ of

mandamus. Moreover, the court stated that the physician’s

“failure to exhaust administrative remedies, in and of itself, will

not bar relief.” (Id. at p. 621.)

It is well established that “a case is authority only for a

proposition actually considered and decided therein.” (In re

Chavez (2003) 30 Cal.4th 643, 656.) The cases USC cites do not

25

support the position that, under the circumstances alleged in the

FAC, plaintiffs were required to file a petition for writ of mandate

rather than a complaint for damages. To the contrary, many of

these cases addressed the plaintiffs’ various causes of action,

such as Major, in which the court addressed the plaintiffs’

multiple theories, including violation of the Unruh Civil Rights

Act, breach of contract, and interference with plaintiffs’ business

relationships—without requiring the plaintiff to bring a writ of

mandate. (Major, supra, 71 Cal.App.4th at p. 1384.)

The parties disagree about the significance of the Supreme

Court’s opinion in Fahlen v. Sutter Central Valley Hospitals

(2014) 58 Cal.4th 655 (Fahlen), especially in the context of

plaintiffs’ first cause of action under section 1278.5. In that case,

the Supreme Court recognized its previous holdings that “persons

filing damage suits authorized by certain whistleblower

statutes—laws forbidding employer retaliation against workers

who have reported fraud, danger, corruption, waste, or

malfeasance—did not have to exhaust available administrative

and mandamus remedies before seeking relief in court.” (Id. at p.

660.) The court in Fahlen held that “when a physician claims,

under section 1278.5, that a hospital’s quasi-judicial decision to

restrict or terminate his or her staff privileges was itself a means

of retaliating against the physician ‘because’ he or she reported

concerns about the treatment of patients, the physician need not

first seek and obtain a mandamus judgment setting aside the

hospital’s decision before pursuing a statutory claim for relief.”

(Ibid.)

The physician plaintiff in Fahlen filed a complaint against

the defendant hospital and others alleging that “defendants had

caused his medical group (Gould) to fire him, had tried to run

26

him out of Modesto, and had terminated his staff privileges. . . .

[T]he complaint sought reinstatement to the Hospital’s medical

staff; a declaration of defendants’ bad faith; economic and

noneconomic compensation, including lost wages; costs and

attorney fees; punitive damages; and other appropriate relief

permitted by law.” (Fahlen, supra, 58 Cal.4th at p. 664.) In the

context of an anti-SLAPP motion to strike under Code of Civil

Procedure section 425.16, the defendants asserted that the

plaintiff’s “suit lacked probable merit because, when plaintiff

timely failed to seek direct judicial review of the decision by a

petition for mandamus, that decision became final, and plaintiff

could not thereafter attack it collaterally in this action.” (Id. at p.

665.)

The Supreme Court’s review was limited to the following

issue: “[W]hether, before a physician may commence a civil suit

alleging that a hospital’s quasi-judicial decision to terminate the

physician’s staff privileges was wrongfully retaliatory under

section 1278.5, the physician must first prevail in an

administrative mandamus proceeding to set the decision aside.”

(Fahlen, supra, 58 Cal.4th at p. 666.) The court held that “a

successful mandamus attack on the decision is not a necessary

condition to the filing of a section 1278.5 action.” (Ibid.)

In reaching its conclusion, the court stated that in a

whistleblower action, a “requirement that [a] plaintiff succeed in

overturning an allegedly retaliatory, as opposed to remedial,

administrative decision before filing a statutory action would

very seriously compromise the legislative purpose to encourage

and protect whistleblowers.” (Fahlen, supra, 58 Cal.4th at p.

678.) The court noted that section 1278.5 allows a plaintiff the

opportunity to “prove by a preponderance of evidence, to a

27

judicial fact finder, his or her distinct claim that there was a

forbidden retaliatory motive” in the defendant employer’s

decision. (Ibid.) The court noted that requiring judicial

exhaustion of an administrative decision before a whistleblower

could file a lawsuit could, in some instances, “flatly contradict the

provision of section 1278.5, subdivision (d)(1) that, for purposes of

a civil whistleblower suit, there is a ‘rebuttable presumption’ of

retaliatory motive if a discriminatory action is taken against a

hospital physician, with the knowledge of the facility’s

responsible staff, within 120 days after he or she has submitted a

protected grievance or complaint.” (Ibid.) The court concluded

that “a hospital staff physician who claims a hospital decision to

restrict or terminate his staff privileges was an act in retaliation

for his or her whistleblowing in furtherance of patient care and

safety need not seek and obtain a mandamus petition to overturn

the decision before filing a civil action under section 1278.5.” (Id.

at p. 687; see also Taswell, supra, 23 Cal.App.5th at p. 361 [“to

require a whistleblower complainant under [section 1278.5] to

exhaust judicial remedies by challenging an adverse

administrative decision through a petition for a writ of

mandamus ‘would be contrary to the evident legislative

intent.’”].)

Plaintiffs assert that under Fahlen, they were not required

to exhaust judicial remedies before filing an action under section

1278.5. USC argues that the hospital’s actions in Fahlen were

quasi-judicial, not quasi-legislative, and the court in Fahlen

stressed that it was addressing only the narrow issues before it.

(See Fahlen, supra, 58 Cal.4th at p. 685 [noting several

undecided issues relating to section 1278.5, and stating, “We

stress, however, that all these matters are beyond the scope of

28

the narrow issue on which we granted review.”].) We find that

plaintiffs have the better argument here. Fahlen reasoned that

the purposes of section 1278.5’s protections for whistleblowers

would be undermined by requiring the plaintiff to adhere to the

very procedures that were being employed, as pretext, to retaliate

against him. (Id. at p. 677.) Under this reasoning, there is no

material difference between retaliatory actions against

whistleblowers, whether deemed quasi-judicial or quasilegislative.

Thus, we find no support for USC’s contention that

plaintiffs were required to bring their claims in a writ of mandate

under Code of Civil Procedure section 1085, or that plaintiffs’

claims were susceptible to demurrer because they were not

asserted in that form. The trial court erred by sustaining the

demurrer on this basis.

C. Individual causes of action

The trial court did not address USC’s alternative argument

that the FAC did not state facts sufficient to constitute the

individual causes of action plaintiffs alleged. USC contends on

appeal that even if plaintiffs were not otherwise barred from

asserting their claims, the demurrer nonetheless should have

been sustained because the FAC “fails to state a claim under any

theory and cannot be cured by amendment.” Plaintiffs contend

that the FAC alleged sufficient facts to state causes of action

under section 1278.5, the CFCA, and the UCL. Plaintiffs do not

address their causes of action for wrongful discipline, intentional

interference with prospective economic advantage, or negligence.

We discuss the parties’ arguments below.

29

1. Section 1278.5

Section 1278.5 states, “The Legislature finds and declares

that it is the public policy of the State of California to encourage

patients, nurses, members of the medical staff, and other health

care workers to notify government entities of suspected unsafe

patient care and conditions.” (§ 1278.5, subd. (a).) To that end,

section 1278.5 prohibits a health care facility from

“discriminat[ing] or retaliat[ing], in any manner, against any

patient, employee, member of the medical staff, or any other

health care worker of the health facility because that person” has

“[p]resented a grievance, complaint, or report to the facility.”

(§ 1278.5, subd. (b)(1)(A).) “Section 1278.5 does not explicitly

limit the type of ‘grievance, complaint, or report’ for which

retaliation is prohibited to one involving concerns about the

quality of patient care,” but “such a limitation is implicit in other

provisions of the statute.” (Fahlen, supra, 58 Cal.4th at p. 667 fn.

6.) Thus, to establish a prima facie case under section 1278.5, a

plaintiff must show that he or she (1) presented a grievance,

complaint, or report to the hospital or medical staff (2) regarding

the quality of patient care and; (3) the hospital retaliated against

him or her for doing so. (§ 1278.5, subd. (b)(1).)

Here, plaintiffs alleged that Alborzi complained about the

defendants’ financial arrangements between December 2017 and

June 2018 by expressing “concerns regarding patient safety [and]

the presence of illegally incentivized decisions about patient care

by and among defendants.” Plaintiffs alleged that Alborzi

reported his concerns to VHH’s chief executive officer in February

and April 2018, and VHH’s chief medical officer in May 2018.

Plaintiffs alleged that in retaliation, defendants “stopped

providing Plaintiffs with on-call panel consultations and

30

eventually terminated the infectious disease on-call panel.” In

July 2018, the chief medical officer informed plaintiffs that the

on-call panel had been dissolved. Plaintiffs alleged that

defendants’ actions “resulted in loss of income to Plaintiffs.”

These facts are sufficient to support a cause of action under

section 1278.5.

USC argues that plaintiffs “did not engage in any form of

protected activity which could have triggered the statute,”

because the FAC does not include “allegations of any actual or

threatened harm to any patient,” and “the real, actual purpose

for Dr. Alborzi’s ‘complaints’ to [VHH] was merely to protect

[plaintiffs’] bottom line.” Plaintiffs assert that Alborzi’s

complaints constituted protected activity because the “improper

referral of patients . . . directly impacts quality of patient care.”

Although plaintiffs’ allegations regarding the impact of the

alleged wrongdoing on patient care are not particularly robust,

we find they are sufficient to meet the requirements of section

1278.5. The FAC stated that Alborzi expressed “concerns

regarding patient safety.” USC cites no authority, and we have

found none, suggesting that concerns about patient safety must

be alleged with particularity.

USC also asserts that section 1278.5 requires a showing of

“adverse employment action,” which plaintiffs did not allege

because they “admit there was no change in their medical staff

privileges or any demotion, suspension, termination, or

disciplinary action imposed of any kind.” USC argues that

plaintiffs’ “discontent with the financial impact of the Hospital’s

decision to stop using the call panel cannot support a retaliation

claim.” We disagree.

31

Section 1278.5 describes “discriminatory” action as

including, but not limited to, “discharge, demotion, suspension, or

any unfavorable changes in, or breach of, the terms or conditions

of a contract, employment, or privileges of the employee, member

of the medical staff, or any other health care worker of the health

care facility, or the threat of any of these actions.” (§ 1278.5,

subd. (d)(2).) If “unfavorable changes,” which may include the

“threat” of unfavorable actions, may constitute discriminatory

action under section 1278.5, then barring plaintiffs from

receiving patient referrals could constitute discriminatory action.

The Supreme Court in Shaw v. Superior Court (2017) 2

Cal.5th 983 (Shaw) noted that the Legislature considered a

variety of ways discriminatory action against a physician may

occur, in light of the fact that physicians and hospitals do not

always have employer/employee relationships. The court noted

that a bill to amend section 1278.5 was proposed in 2007 “in

order to extend to physicians and surgeons on the medical staffs

of hospitals or other health care facilities the protections against

discrimination and retaliation that the then-existing provisions of

section 1278.5 afforded to employees of health care facilities.” (Id.

at p. 1000 [emphasis in original].) A related bill analysis by the

Senate Judiciary Committee noted that according to the

California Medical Association, “examples of actions a hospital

can take to suppress physician-whistleblowers or to retaliate

against them” included “underwriting the salary and/or practice

expenses of a competing physician,” “recruiting competing

physicians to the community in the absence of a community

deficit for that specialty,” “establishing a medical practice

administrative service company for selected physicians and

charging below market rates so that the doctor keeps a higher

32

percentage of the collections and gains a competitive advantage,”

“inducing primary care physicians to refer patients to the

hospital outpatient facility for tests, bypassing the specialist’s

office-based testing (e.g., imaging and cardiac tests),” or

“developing investment partnerships with selected physicians

(surgery center, MRI center) that provide lucrative annual

returns on investment.” (Id. at pp. 1001-1002.) “In apparent

response” to these concerns, the Legislature amended the

remedies in section 1278.5 to include “‘any remedy deemed

warranted by the court pursuant to this chapter or any other

applicable provision of statutory or common law.’” (Id. at p. 1002;

§ 1278.5, subd. (g).) Thus, it appears that the Legislature

intended section 1278.5 to encompass a broad array of

discriminatory actions. The statute is not limited to revocation of

privileges or specific disciplinary actions, as USC contends.

USC also argues that plaintiffs failed “to establish

causation between any alleged adverse employment action and

Dr. Alborzi’s complaints.” This argument is specious. Plaintiffs

clearly alleged that dissolution of the on-call panel was

retaliatory. Moreover, section 1278.5, subdivision (d)(1) provides

that if “discriminatory action occurs within 120 days of the filing

of the grievance or complaint” by the member of the medical staff,

there is “a rebuttable presumption that discriminatory action was

taken . . . in retaliation against” that staff member. USC argues,

without citation to any authority, that plaintiffs are not entitled

to this presumption because the FAC states that Alborzi was

concerned about the financial arrangements for more than 120

days. This argument is unsupported and unpersuasive.

33

Plaintiffs therefore stated sufficient facts to support a cause

of action for violation of section 1278.5.2

2. California False Claims Act

“The CFCA permits the recovery of civil penalties and

treble damages from any person who knowingly presents a false

claim for payment to the state or a political subdivision.” (State

of California ex rel. Standard Elevator Co., Inc. v. West Bay

Builders, Inc. (2011) 197 Cal.App.4th 963, 973.) “The Legislature

designed the CFCA ‘“to prevent fraud on the public treasury,”’

and it ‘“should be given the broadest possible construction

consistent with that purpose.”’” (San Francisco Unified School

Dist. ex rel. Contreras v. Laidlaw Transit, Inc. (2010) 182

Cal.App.4th 438, 446.)

Government Code section 12653, part of the CFCA, states,

“Any employee, contractor, or agent shall be entitled to all relief

necessary to make that employee, contractor, or agent whole, if

that employee, contractor, or agent is discharged, demoted,

suspended, threatened, harassed, or in any other manner

discriminated against in the terms and conditions of his or her

employment because of lawful acts done by the employee,

2For the first time in their reply brief, plaintiffs suggested

specific ways they could amend their allegations that VHH’s

dissolution of the on-call panel was retaliatory. USC filed a

motion to strike these portions of the reply, arguing that

plaintiffs did not suggest these amendments in the trial court

and it was inappropriate for plaintiffs to assert them for the first

time in their reply brief. Plaintiffs filed an opposition and USC

filed a reply. We deny USC’s motion, but nonetheless disregard

the portions of plaintiffs’ reply brief suggesting new proposed

factual amendments because they are not relevant to our

analysis. (See Cal. Rules of Court, rule 8.204(e)(2)(C).)

34

contractor, agent, or associated others in furtherance of an action

under this section or other efforts to stop one or more violations of

this article.” (Gov. Code, § 12653, subd. (a).) “[A] plaintiff

alleging retaliation under the CFCA must show: ‘(1) that he or

she engaged in activity protected under the statute; (2) that the

employer knew the plaintiff engaged in protected activity; and (3)

that the employer discriminated against the plaintiff because he

or she engaged in protected activity.’” (McVeigh v. Recology San

Francisco (2013) 213 Cal.App.4th 443, 455.)

USC asserts that plaintiffs cannot have standing because

Government Code section 12653 is limited to “employees,

contractors, or agents,” and as a matter of law, plaintiffs were

none of these. Plaintiffs assert that this argument is “patently

absurd,” because case law and “common sense” hold that an

“individual working for or with an entity is either an employee or

an independent contractor of that entity.” Relying on competing

case law, the parties argue about whether or not physicians with

medical staff privileges can be classified as contractors or agents

of a hospital as a matter of law.

We decline to address these legal issues in a vacuum.

Plaintiffs failed to allege whether they were employees,

contractors, or agents of any of the defendants. Without such an

allegation, plaintiffs have failed to allege facts sufficient to show

that they have standing to assert a cause of action under

Government Code section 12653.

USC also contends that plaintiffs failed to allege facts to

show any protected activity under the CFCA. USC asserts that

plaintiffs’ claims are insufficient because they “do not allege

[plaintiffs] ever investigated alleged false claims or reported to

35

anyone that [VHH] had allegedly submitted a false or fraudulent

claim for payment.”

“[T]o constitute protected activity under the CFCA, the

employee’s conduct must be in furtherance of a false claims

action. [Citation.] The employee does not have to file a false

claims action or show a false claim was actually made; however,

the employee must have reasonably based suspicions of a false

claim and it must be reasonably possible for the employee’s

conduct to lead to a false claims action.” (Kaye v. Board of

Trustees of San Diego County Public Law Library (2009) 179

Cal.App.4th 48, 60; see also Mendiondo v. Centinela Hosp.

Medical Center (9th Cir. 2008) 521 F.3d 1097, 1104 [the plaintiff

was “engaged in protected activity if she reasonably believed that

[the defendant] was possibly committing fraud against the

government, and she investigated the possible fraud.”].)

Here, plaintiffs alleged in the FAC that the defendants’

financial arrangements violated state and federal law. In their

briefing on appeal, they assert that such allegations are sufficient

because “[v]iolation of either the Stark Law [42 U.S.C. § 1320a7b] or the Anti-Kickback Law in connection with Medicare claims

submitted is actionable under the False Claims Act.” However,

the FAC does not include allegations that these laws were

violated with respect to Medicare claims. Although plaintiffs

have alleged that they were attempting to address financial

wrongdoing, they have not connected that wrongdoing with any

alleged false claims. Thus, plaintiffs have failed to allege facts

sufficient to state a cause of action under the CFCA.

Typically, “leave to amend is liberally allowed as a matter

of fairness, unless the complaint shows on its face that it is

incapable of amendment.” (City of Stockton v. Superior Court

36

(2007) 42 Cal.4th 730, 747.) The cause of action is capable of

amendment. Thus, if the trial court had reached this issue and

denied leave to amend, it would have been an abuse of discretion.

(See, e.g., Campbell v. Regents of University of California (2005)

35 Cal.4th 311, 320 [“If we see a reasonable possibility that the

plaintiff could cure the defect by amendment, then we conclude

that the trial court abused its discretion in denying leave to

amend.”].) Because the trial court erred by sustaining the

demurrer on a different basis and never reached this issue,

plaintiffs have not had an opportunity to amend this claim. On

remand, therefore, we order the trial court to grant plaintiff leave

to amend this cause of action.

3. Unfair Competition Law

The UCL prohibits unfair competition, defined as “any

unlawful, unfair, or fraudulent business act or practice.” (Bus. &

Prof. Code, § 17200.) The statute’s “purpose is to protect both

consumers and competitors by promoting fair competition in

commercial markets for goods and services.” (Kasky v. Nike, Inc.

(2002) 27 Cal.4th 939, 949.) By defining unfair competition to

include any “‘unlawful . . . business act or practice’ (Bus. & Prof.

Code, § 17200, italics added), the UCL permits violations of other

laws to be treated as unfair competition that is independently

actionable.” (Ibid.)

In their UCL cause of action in the FAC, plaintiffs referred

to their general allegations that VHH and Concord entered into a

below-market contract for hospitalist services, Concord shared

ownership with Elevate, and Concord self-referred patients to

Elevate. Plaintiffs alleged that these actions violated four laws:

Business and Professions Code section 650, et seq., which

prohibits commissions or other consideration as compensation for

37

referring patients (Bus. & Prof. Code, § 650, subd. (a)); Health

and Safety Code section 445, which bars referrals of patients for

profit; Welfare and Institutions Code section 14107.2, which bars

kickbacks, bribes, or rebates relating to the referral of goods or

services; and Business and Professions Code section 2273,

subdivision (a), which bars “the employment of runners, cappers,

steerers, or other persons to procure patients.”

USC asserts that plaintiffs’ “sole allegation that these

statutes were violated by the Hospital is that it benefited from

the financial arrangements by saving money on hospitalist

services.” It argues that plaintiffs’ “conclusory allegations” do not

“support any claim that the Hospital improperly referred patients

to a physician.”

We find the allegations sufficient to state a cause of action.

Plaintiffs alleged that VHH benefitted from the kickback scheme

by saving money, and it entered into the contract for that

purpose. Plaintiffs were not required to allege, as USC asserts,

“how and why the contract was below fair market value, or how

the contract necessarily resulted in a fraudulent kickback

scheme.” Particularized fact pleading is not required for a UCL

claim. (See Quelimane Co. v. Stewart Title Guaranty Co. (1998)

19 Cal.4th 26, 46-47.)

4. Causes of action not addressed in plaintiffs’ briefs

Plaintiffs’ opening brief does not address their third cause

of action for wrongful discipline, fourth cause of action for

intentional interference with prospective economic advantage, or

sixth cause of action for negligence. Plaintiffs state in a footnote

in their opening brief, “Because the trial court’s ruling requires

reversal as a matter of law, and that the trial court be ordered to

instead deny the demurrer to the FAC in its entirety, this Court

38

need not reach the issue of whether Dr. Alborzi’s [sic] other

claims for wrongful discipline, interference with prospective

economic advantage, and negligence adequately state a claim.”

They assert in a footnote in their reply brief that “[r]esolution of

the sufficiency of the third, fourth, and sixth claims, which were

never reached or discussed by the trial court, could be left for the

trial court in the first instance if subsequently challenged by

[defendants].”

USC asserts that plaintiffs have abandoned these causes of

action by not addressing them on appeal. We agree. Although

our review of a demurrer ruling is de novo, our review “‘is limited

to issues which have been adequately raised and supported in

[appellants’ opening] brief.’” (WA Southwest 2, LLC v. First

American Title Ins. Co. (2015) 240 Cal.App.4th 148, 155.) Thus,

where a demurrer is sustained without leave to amend, the

appellant’s failure to address certain causes of action in the

complaint is deemed an abandonment of those causes of action.

(Ram v. OneWest Bank, FSB (2015) 234 Cal.App.4th 1, 9 fn. 2.)

We therefore find that plaintiffs have abandoned their causes of

action for wrongful discipline, intentional interference with

prospective economic advantage, and negligence.3

3In their reply brief, filed July 7, 2020, plaintiffs state that

they “very recently” discovered that the June 2019 judgment

included Concord and Elevate. They explain that they

“inadvertently mistook the demurrer by Concord and Elevate as a

second demurrer filed by” USC. They assert that judgment as to

Concord and Elevate should be reversed, because the trial court’s

dismissal of the case in its entirety was inappropriate in response

to demurrer by USC only. Because we reverse the judgment for

the reasons expressed herein, we do not reach this issue. Nor do

The judgment is reversed, and the cause is remanded with directions to enter a new order as follows: The demurrer is sustained without leave to amend as to plaintiffs’ third cause of action for wrongful discipline, fourth cause of action for intentional interference with prospective economic advantage, and sixth cause of action for negligence. The demurrer is sustained with leave to amend as to plaintiffs’ second cause of action for violation of Government Code section 12653. The demurrer is overruled as to plaintiffs’ first cause of action for violations of Health and Safety Code section 1278.5, and fifth

cause of action for violations of Business and Professions Code section 17200, et seq. Plaintiffs are entitled to recover their costs on appeal.