A Tale of Two Plaintiffs

By Jennifer Tsao -

Two patients were admitted into Sharp Grossmont Hospital.  Neither patient was insured at the time.  Both patients were required to sign an “Agreement for Services at a Sharp Facility” (Admissions Agreement) obligating the patient to pay Sharp’s “usual and customary charges” for services.  Neither patient fully paid the billed charges; instead, both patients filed putative class action lawsuits against Sharp Healthcare (Sharp) alleging that the San Diego-based hospital network engaged in deceptive and unfair practices through its billing schemes.

In their respective lawsuits, the plaintiffs alleged that as uninsured patients, they were billed at Sharp’s full rates for services, when patients who are covered by Medicare or private insurance are given substantial discounts.  Because the the bulk of Sharp’s patients were insured, the Sharp’s discounted rates were the “regular” rates and the rates that the plaintiffs were being charged were “grossly excessive.”

Both lawsuits against Sharp asserted causes of action for violation of unfair competition law (UCL) (Bus. & Prof. Code, § 17200 et seq.), violation of the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), breach of contract and breach of the implied covenant of good faith and fair dealing.

Earlier this week, the California Court of Appeals of the Fourth Appellate District issued companion opinions on the two putative class actions.  The trial court had sustained demurrers on each of the plaintiffs’ causes of action.  Upon review, the Court of Appeals upheld the demurrer to the UCL claim in one opinion (Durell v. Sharp Healthcare ), but reversed the demurrer to the UCL claim in the other opinion (Hale v. Sharp Healthcare).

What was the difference?  In Durell, the appellate court was unsatisfied by the plaintiff’s allegation of reliance.

In order for a private person to have standing to bring a UCL claim, he or she must have “suffered injury in fact and … lost money or property as a result of the unfair competition.” Bus. & Prof. Code, § 17204; Troyk v. Farmers Group, Inc., 171 Cal. App. 4th 1305, 1335 (2009).

Extending the Supreme Court’s reasoning in In re Tobacco II, a fraud-based UCL claim, the appellate court interpreted the UCL language “as a result of” as requiring the plaintiff to show actual reliance on Sharp’s alleged misrepresentations.  The Court found that alleging a mere factual nexus between the business’ conduct and the consumer’s injury is insufficient to allege a UCL claim.

The Court focused on the fact that Plaintiff Durell’s Second Amended Complaint did not allege that he relied on any representations by Sharp in seeking or accepting services from Sharp once he arrived at the hospital. “Indeed,” the Court stated, “the SAC does not allege Durell ever visited Sharp’s Web site or even that he ever read the [Admissions Agreement].”

By contrast, the Court in Hale found that Plaintiff Hale successfully established standing by alleging that she signed the hospital’s Admission Agreement, and “at the time of signing the contract, she was expecting to be charged ‘regular rates,’ and certainly not the grossly excessive rates that she was subsequently billed.” (Italics added).  The Court found that “expecting” to be charged regular rates versus “relying” on being charged regular rates is a distinction without a difference, and therefore, Hale’s complaint sufficiently plead the element of reliance.

As the plaintiffs and their attorneys learned, a few extra words in pleading facts can make a very big difference.