Opinion
B231849
01-30-2012
AMALIA CORONA LAMPLE, Plaintiff and Appellant, v. CALIFORNIA PHYSICIANS' SERVICE, Defendant and Respondent.
Kiesel Boucher Larson, William Larson; and Herbert L. Greenberg for Plaintiff and Appellant. Manatt, Phelps & Phillips, Gregory N. Pimstone, Craig S. Bloomgarden, Joanna S. McCallum and Joanna Rosen for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC441127)
APPEAL from a judgment of the Superior Court of Los Angeles County, William F. Highberger, Judge. Reversed and remanded.
Kiesel Boucher Larson, William Larson; and Herbert L. Greenberg for Plaintiff and Appellant.
Manatt, Phelps & Phillips, Gregory N. Pimstone, Craig S. Bloomgarden, Joanna S. McCallum and Joanna Rosen for Defendant and Respondent.
Amalia Corona Lample filed an action on behalf of herself and all others similarly situated alleging California Physicians' Service, doing business as Blue Shield of California (Blue Shield), violated California's unfair competition law (Bus. & Prof. Code, § 17200 et seq.) (UCL) by charging certain subscribers to its preferred provider health care service plans premiums that exceed the rate caps identified in Health and
Safety Code sections 1399.805 and 1399.811. Lample also asserted a claim for fraudulent concealment based on Blue Shield's failure to disclose its unlawful practice to its subscribers. The trial court sustained Blue Shield's demurrer without leave to amend, concluding Blue Shield's alleged conduct was not prohibited by sections 1399.805 and 1399.811 as a matter of law and therefore did not violate the UCL. The court also sustained the demurrer to Lample's fraud claim, finding it derivative of the UCL claims. Because Lample's claims under the UCL were not properly dismissed, we reverse.
Statutory references are to the Health and Safety Code unless otherwise indicated.
FACTUAL AND PROCEDURAL BACKGROUND
1. Pertinent Statutory and Regulatory Environment
a. The federal Health Insurance Portability and Accountability Act
The federal Health Insurance Portability and Accountability Act (HIPAA), which became law in 1996, requires every health insurance issuer to offer for sale individual health insurance coverage to individuals who had had group health care coverage prior to the expiration of their federal COBRA benefits and who satisfy certain other criteria. (See 42 U.S.C § 300gg-41.) HIPAA was intended to provide a safety net for those individuals who, due to job loss or change in employer-provided benefits, had lost their group health insurance by guaranteeing those persons "the availability" of health care coverage regardless of otherwise disqualifying factors, including preexisting health conditions. (42 U.S.C § 300gg-41; see Sen. Rep. No. 104-56, 1st Sess., p. 1 (1995) ["The current health insurance market provides too little protection for individuals and families with significant health problems and makes it too difficult for employers—particularly small employers—to obtain adequate coverage for their employees. [HIPAA] will reduce many of the current barriers to obtaining health coverage by making it easier for people who change jobs or lose their jobs to maintain adequate coverage and by providing increased purchasing power to small businesses and individuals."].)
COBRA is an acronym for the Consolidated Omnibus Budget Reconciliation Act of 1985, which mandates that certain employees and their dependents be offered the option of paying premiums to continue medical coverage for a limited period after the termination of coverage under a group health plan. (See 29 U.S.C. §§ 1161-1167; 42 U.S.C. §§ 300bb-1 to 300bb-8.)
b. California law on coverage for HIPAA-eligible individuals
In 2000 the California Legislature passed, and the Governor signed, Senate Bill No. 265 (1999-2000 Reg. Sess.), codified in sections 1366.35, 1399.805, 1399.811 and Insurance Code sections 10785, 10900-10902.6, to implement an "acceptable alternative mechanism to HIPPA." (Stats. 2000, ch. 810, §§ 1-6; see 42 U.S.C. § 300gg-44 [health insurance issuer may comply with HIPAA legislation either by compliance with the federal law or with "an acceptable alternative [state law] mechanism"]; 45 C.F.R. § 148.120(b) [same]; see also Assem. Com. on Health, Analysis of Sen. Bill No. 265 (1999-2000, Reg. Sess.), as amended July 6, 2000 [legislation is intended as "acceptable alternative mechanism" to HIPAA].)
California's HIPAA-based legislation combined HIPAA's guarantee of access to available health care coverage with affordability, with the latter component achieved by imposing premium caps on the products California insurers and health care service plans are required to make available to HIPAA-eligible consumers. (See Assem. Com. on Health, Analysis of Sen. Bill No. 265, as introduced at p. 4 ["The purpose of this bill is to combine access with affordability, since insurers and plans already are required under HIPAA to make coverage available to this population. [B]ecause HIPAA does not restrict premium rates, California insurers are charging at least 200 percent of the normal group rates for HIPAA coverage. [¶] This bill addresses the affordability issue" by imposing rate caps on HIPAA products.]; see also Sen. Bill No. 265 (1999-2000 Reg. Sess.), as amended Aug. 30, 2000 ["high premiums" charged by health care service plans and insurers for HIPAA products are cost prohibitive, "destroy[ing] the federal intent [of HIPPA] to make health care coverage portable when a worker loses employer-based coverage].)
The statutory rate caps for HIPAA products delivered by health care service plans through preferred provider arrangements (HIPAA PPO plans) are codified in sections 1399.805, subdivision (A)(1)(A) and 1399.811, subdivision (a)(1). Both statutes provide that "in no case" shall the premium charged for any HIPAA PPO plan exceed "the average premium paid by a subscriber of the Major Risk Medical Insurance Program who is of the same age and resides in the same geographic area as the federally eligible individual."
California insurance companies and health care service plans are subject to two distinct regulatory schemes. Health care service plans such as Blue Shield are governed by the Knox-Keene Health Care Service Plan Act of 1975 (Knox-Keene Act) (see § 1340 et seq.) and fall under the regulatory authority of the Department of Managed Health Care. (See Nieto v. Blue Shield of Cal. Life & Health Ins. Co. (2010) 181 Cal.App.4th 60, 84-85.) Other health care issuers, including traditional indemnity health care insurers, are subject to provisions of the Insurance Code and fall under the regulatory authority of the Department of Insurance. (Blue Cross of California, Inc. v. Superior Court (2009) 180 Cal.App.4th 1237, 1243; Viola v. California Dept. of Managed Health Care (2005) 133 Cal.App.4th 299, 309, fn. 3.) California's HIPAA-based legislation governs both health insurers and health care service plans. (Compare §§ 1355.35, 1399.805, 1399.811 [health care service plans] with Ins. Code, §§ 10785, 10900-10902.6 [health benefit plans governed by Ins. Code].)
c. The Major Risk Medical Insurance Program
The Major Risk Medical Insurance Program (MRMIP), enacted in 1989 and substantially amended in 1990 (predating HIPAA), is California's state-subsidized health care coverage program for "high risk" individuals who cannot obtain coverage in the individual health insurance market due to, among other things, preexisting health conditions. (See Ins. Code, § 12700, subd. (a) [Legislature "finds and declares" that "many Californians do not have employer-sponsored group health coverage and are unable to secure adequate health coverage for themselves and their dependents because of preexisting medical conditions, and a number of employer sponsored groups have difficulty obtaining or maintaining their health coverage because some members of the group either have or are viewed as being at risk for having high medical costs"]; see generally Ins. Code, §§ 12700-12739.4 [statutory provisions pertaining to MRMIP].)
The MRMIP is administered by the Managed Risk Medical Insurance Board (the MRMIP Board), which, among other things, has broad authority to determine program eligibility, approve subscriber contributions and premium rates and issue rules and regulations to carry out the purposes of the MRMIP. (See Ins. Code, § 12711 [vesting MRIMIP Board with regulatory authority].) The MRMIP Board determines MRMIP premiums based on risk categories defined by a subscriber's geographic location and age group. (See Ins. Code, § 12737; Cal. Code Regs., tit. 10, § 2698.400, subd. (a)(1) [dividing California into six geographic regions and establishing 12 defined age groups]; see also Cal. Code Regs., tit. 10, § 2698.400, subd. (b) ["n]o other risk categories are allowed for the purpose of this program"].) These "rating cells"—defined groups based on age group and geographic regions—are then used by the MRMIP Board along with regulatory formulas to determine MRMIP subscriber premiums.
2. The Complaint
In July 2010 Lample, a subscriber to Blue Shield's HIPPA preferred provider program, filed an action on behalf of herself and a putative class of all other similarly situated California residents. The operative second amended complaint alleges that, from 2001 through 2009, Blue Shield charged subscribers to its HIPAA PPO plans, including her, premiums in excess of the average premium paid by a subscriber of the MRMIP who was of the same age and resided in the same geographic area, in violation of sections 1399.805, subdivision (a)(1)(A), and 1399.811, subdivision (a)(1).
Lample's pleading acknowledges that neither section 1399.805 nor 1399.811 defines the methodology to calculate the "average premium paid" by a subscriber of the MRMIP within a particular risk category. It also recognizes that, at least prior to 2009, the Department of Managed Health Care had not adopted regulations that require use of a particular formula or calculation method. However, paragraph 22 of the pleading alleges the Department of Managed Health Care and the Department of Insurance decided, soon after sections 1399.805 and 1399.811 were enacted, that the MRMIP Board would calculate and provide both departments with the "average premium paid" by MRMIP subscribers by using a "weighted average by region and age range." The "weight" is based on the number of subscribers enrolled in a particular plan for each rating cell. The use of the weighted mean, rather than a "straight average," prevents a plan with only a few subscribers in a particular cell from having undue significance in the average premium calculation.
In late 2009 the Department of Managed Health Care adopted a policy interpreting sections 1399.805 and 1399.811's "average premium paid" language to require application of a formula that uses "weights" based upon the "MRMIP population base of an entire region . . . rather than the population of a single age band . . . within that region." Lample alleges the new policy was adopted without complying with California's Administrative Procedures Act (Gov. Code, § 11340.5) and has separately petitioned for a writ of mandate to compel the Department to rescind the 2009 policy, alleging it is invalid. (L.A. Sup. Ct. Case No. BC445662.)
Although not specifically alleged in Lample's complaint, it is reasonable to infer that the more expensive plan will have fewer subscribers.
According to the complaint, the MRMIP Board annually calculated the average premium paid for MRMIP products in accordance with the weighted mean methodology and, pursuant to their agreement, communicated that information to the Department of Managed Health Care to give to HIPPA PPO providers. Although this information was available to health care service plans on request, Blue Shield did not request it from the Department of Managed Health Care. Instead, using its own methodology, Blue Shield calculated premiums for its HIPAA products based on the average of the rates each provider of HIPAA PPO service plans sought to charge MRMIP subscribers, that is, a straight average of premium rates without regard to the number of subscribers to each plan in a particular rating cell. As a result, Lample alleges, Blue Shield charged its HIPAA eligible subscribers as much as 55 percent more than other health care service preferred provider plans that had adhered to the Department of Managed Health Care's methodology for calculating the average premium paid.
Lample's putative class action asserts Blue Shield's HIPAA PPO premiums violated sections 1399.805 and 1399.811 and thus constitute an unlawful business practice under Business and Professions Code section 17200. Lample sought both an injunction prohibiting Blue Shield from continuing to calculate premiums in violation of the statutory rate caps and restitution for herself and all similarly situated Blue Shield subscribers. Lample's pleading also asserts a cause of action for fraud on behalf of herself and the putative class, claiming Blue Shield had a duty to disclose to its subscribers that its rates were in excess of the statutory rate caps.
3. Blue Shield's Demurrer to the Second Amended Complaint
Blue Shield demurred to the second amended complaint, arguing the court could determine it had not violated sections 1399.805 and 1399.811 as a matter of law. Blue Shield observed that neither section 1399.805 nor 1399.801 nor any formal regulation promulgated by the Department of Managed Health Care defined the phrase "average premium paid" by a subscriber or identified a particular methodology to calculate the rate caps. The MRMIP Board, Blue Shield argued, is not the regulatory authority for health care service plans—the Department of Managed Health Care is—and the MRMIP Board's methodology was not binding on it. Moreover, Blue Shield argued, the Department of Managed Health Care had approved its methodology, and Blue Shield could not be held liable for its good faith conduct in accordance with that approval.
In support of its demurrer Blue Shield requested the trial court take judicial notice of excerpts of the legislative history of Assembly Bill No. 718 (2009-2010 Reg. Sess.) (AB 718), legislation proposed by the Department of Managed Health Care in January 2009 to specifically define the phrase "average premium paid by a subscriber" used in sections 1399.805 and 1399.811. The Department explained in a position paper in support of the proposed legislation that clarifying language was needed because the statutes did not specify the methodology to be used to calculate the rate caps and the phrase had been interpreted differently by regulators and regulated entities. The Department stated it "never formally adopted a position on the matter, nor has the current Insurance Commissioner," and "the lack of clear guidance in the statute [has] resulted in health plans selling PPO products using different 'average premium formulas.'"
The Department of Managed Health Care's position paper also detailed the methodologies used by various health plans to calculate the "average premium paid" by MRMIP subscribers in a particular rating cell, that is, within a particular age group and geographic region. For example, the Department observed, the MRMIP Board uses "a weighted average of all rates for the MRMIP plans . . . . The 'weight' comes from the number of subscribers in any given rating cell (aka age category, i.e. 30-34)." Blue Shield, in contrast, uses a "straight (unweighted) average of each MRMIP health plan's rates, in any given rating cell, rounded to whole dollars. For instance, if there are five plans participating in MRMIP, Blue Shield would take their rates from a rating cell, add them, then divide by five to get its HIPAA PPO rate for that rate cell."
Lample opposed the demurrer, insisting paragraph 22 of the operative second amended complaint alleges a long-standing interpretation of sections 1399.805 and 1399.811 by the Department of Managed Health Care, made contemporaneously with the legislative enactment, which required use of the MRMIP Board's weighted average formula to calculate the average premium paid in accordance with sections 1399.805 and 1399.811. In addition, Lample objected to Blue Shield's request for judicial notice because AB 718 had been withdrawn by its legislative sponsor, and the truth of the facts described in the material presented to the court was not subject to judicial notice. Finally, Lample argued she had properly pleaded a cause of action for fraudulent nondisclosure because Blue Shield never told its subscribers it was using its own methodology, rather than the rates calculated by the MRMIP Board, to ensure its HIPAA PPO product premiums fell within statutory rate caps.
4. The Trial Court's Order Sustaining Blue Shield's Demurrer Without Leave To Amend
The trial court granted Blue Shield's request for judicial notice of the Department of Managed Health Care's 2009 position paper in support of AB 718 and sustained Blue Shield's demurrer without leave to amend. The court explained, "Although the questions presented are somewhat complex, they are fundamentally a legal question as to what is the reference point for government-imposed pricing of these policies. The Court agrees with defendant's analysis that they are entitled to use the procedures which have been employed to date and that plaintiff's contrary analysis of how these policies ought to be priced is not legally mandated by the statute. The second cause of action is derivative of the legal theory pled in the first cause of action, so it necessarily falls if the first cause of action falls. [¶] Under the circumstances, there is no reason to drag out this case in the trial court simply to re-posture the same question as a ruling on a motion for summary judgment. Therefore, having agreed with defendant's position, the Court finds no reason to allow leave to amend."
DISCUSSION
1. Standard of Review
On appeal from an order dismissing an action after the sustaining of a demurrer, we independently review the pleading to determine whether the facts alleged state a cause of action under any possible legal theory. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415; Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.) We give the complaint a reasonable interpretation, "treat[ing] the demurrer as admitting all material facts properly pleaded," but do not "assume the truth of contentions, deductions or conclusions of law." (Aubry, at p. 967; accord, Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.) We liberally construe the pleading with a view to substantial justice between the parties. (Code Civ. Proc., § 452; Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
"'Where the complaint is defective, "[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment. [Citations.]'" [Citations.] This abuse of discretion is reviewable on appeal 'even in the absence of a request for leave to amend' [citations], and even if the plaintiff does not claim on appeal that the trial court abused its discretion in sustaining a demurrer without leave to amend." (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at pp. 970-971.) We determine whether the plaintiff has shown "in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading." (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.)
2. The UCL—Business and Professions Code Section 17200
Unfair competition under the UCL means "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising . . . ." Written in the disjunctive, Business and Professions Code section 17200 establishes "three varieties of unfair competition—acts or practices which are unlawful, unfair, or fraudulent." (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 (Cel-Tech);accord, Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.)
The "unlawful" prong of the UCL "'borrows' violations of other laws by making them independently actionable as unfair competitive practices." (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1143; accord, Kasky v. Nike, supra, 27 Cal.4th at p. 949; Ticconi v. Blue Shield of California Life & Health Ins. Co. (2008) 160 Cal.App.4th 528, 539.) The "unfair" prong authorizes a cause of action under the UCL if the plaintiff can demonstrate the objectionable act, while not unlawful, is "unfair" within the meaning of the UCL. (Cel-Tech, supra, 20 Cal.4th at p. 182.)
The definition of "unfair" within the meaning of the UCL is discussed in part 4 below.
In this court Lample contends her complaint states a cause of action under the UCL on two distinct theories: (1) Blue Shield violated sections 1399.805 and 1399.811 of the Knox-Keene Act by charging HIPAA-eligible PPO subscribers more than the average premium paid by a subscriber to the MRMIP in the same age category and geographic region, an unlawful business practice; and (2) Blue Shield's premium charges, even if not unlawful, were an unfair practice within the meaning of Business and Professions Code section 17200.
Although Lample did not argue in the trial court that she had stated a viable cause of action under the "unfair" prong of the UCL, we requested letter briefing from the parties on the question whether the complaint states, or can be amended to state, a cause of action for an unfair business practice under Business and Professions Code section 17200. (See generally Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 967 [order sustaining demurrer without leave to amend is improper if complaint states, or can be amended to state, cause of action under any possible legal theory].)
3. The Trial Court Erred in Sustaining the Demurrer to the Claim for an Unlawful Business Practice Without Leave To Amend
Lample alleges Blue Shield violated sections 1399.805 and 1399.811 of the Knox Keene Act—and thus the UCL—by charging her and other similarly situated HIPAA PPO subscribers a premium that exceeded the "average premium paid" by a similar MRMIP subscriber. This allegation has two separate components: First, as her primary contention, Lample asserts Blue Shield violated the Knox-Keene Act by failing to adopt the weighted average formula developed by the MRMIP Board. Second, Lample's pleading, read liberally as we must, contends that Blue Shield has set premiums based on an average of the rates charged by plan providers, rather than the average premium paid by a subscriber to MRMIP, and has therefore violated the Knox-Keene Act.
a. Even if the statutory language does not expressly require a weighted average of premiums paid by subscribers, Lample can amend her complaint to allege a long-standing administrative interpretation of sections 1399.805 and 1399.811 that mandates use of that methodology
Focusing on the allegations relating to the MRMIP Board's weighted average methodology, Blue Shield argued in its demurrer it was not liable under the UCL as a matter of law because neither section 1399.805 nor 1399.811 expressly requires the use of a weighted average based on a plan's enrollment numbers and neither statute vests the MRMIP Board with the authority to determine the maximum allowable rates to be charged by health care service plans, which are regulated by the Department of Managed Health Care, not the MRMIP Board. Accordingly, its failure to adopt the MRMIP Board's methodology for calculation of premiums is not unlawful.
The interpretation of the phrase "the average premium paid by a subscriber" in sections 1399.805 and 1399.811, like any other issue of statutory construction, is ultimately a question of law for the court. (In re Tobacco II Cases (2009) 46 Cal.4th 298, 311; People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.) In construing those statutes "[o]ur fundamental task . . . is to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute[s]. [Citation.] We begin by examining the statutory language, giving the words their usual and ordinary meaning. [Citation.] If there is no ambiguity, then we presume the lawmakers meant what they said, and the plain meaning of the language governs. [Citations.] If, however, the statutory terms are ambiguous, then we may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history. [Citation.] In such circumstances, we '"select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences."'" (Day v. City of Fontana (2001) 25 Cal.4th 268, 272; accord, People v. Lawrence (2000) 24 Cal.4th 219, 230.)
As Lample acknowledges, the term "average" can have a variety of meanings depending on the context in which it is used; and sections 1399.805 and 1399.811 do not specify how the average premium paid by a similarly situated subscriber to an MRMIP plan is to be calculated. (Cf. Garfield Medical Center v. Belshe (1998) 68 Cal.App.4th 798, 807-808 [the term "mean" as used in federal statute governing payments to hospitals for Medicaid patients is ambiguous; it includes "the arithmetic mean (also known as the arithmetic average), the weighted mean (also known as weighted average), the geometric mean, and the harmonic mean. The appropriateness of a particular mean as a statistical tool depends upon the purpose.'"].) Lample also concedes the statutes do not expressly vest the MRMIP Board with the authority to determine "the average premium paid by a subscriber."
The legislative history of sections 1399.805 and 1399.811 is not particularly helpful as an interpretative tool on this question. (See generally Day v. City of Fontana, supra, 25 Cal.4th at p. 272 [if statutory terms are ambiguous, "then we may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history"].) As introduced, Senate Bill No. 265 did not tie rate caps to the premiums paid by MRMIP subscribers. However, after it became clear the Legislature intended to impose rate caps on HIPAA PPO products, the California Association of Health Plans and Blue Cross of California urged that the ceiling on premiums be based on MRMIP premiums. (See Assem. Com. on Health, Rep. on Sen. Bill No. 265 (1999-2000 Reg. Sess.), June 29, 1999, at p. 5 ["if a cap must be placed on the premium for [HIPAA-eligible] individuals, a more appropriate benchmark would be the rates paid in MRMIP"].) The critical language in the bill was thereafter amended several times: Initially, the cap on premiums was to be "the overall average premium paid" by MRMIP subscribers (see Sen. Bill No. 265 (1999-2000 Reg. Sess.), as amended July 8, 1999), then the "actual premium paid" by MRMIP subscribers (id., as amended June 22, 2000), and finally the "average premium paid" by MRMIP subscribers, but with the additional qualifying phrase "who is of the same age and resides in the same geographic region." (Id., as amended Aug. 29, 2000.)
No explanation for these changes or the final choice of wording is contained in the legislative materials. While the intent of the legislation is clear—to make health care service plans available to, and affordable for, HIPAA-eligible subscribers—any inference the Legislature vested the MRMIP Board with making that calculation or required the average premium paid to be calculated using a specific type of weighted average formula would be entirely speculative. (See Campbell v. Regents of University of California (2005) 35 Cal.4th 311, 331 ["[i]n our view therefore, the legislative history appears unclear"; we may not read intent into the statute when the legislative history "does not clearly support it"].)
Notwithstanding these obstacles to a single, clear interpretation of the mandatory rate cap provisions in sections 1399.805 and 1399.811, Lample has alleged in paragraph 22 of the second amended complaint that a long-standing interpretation of the these statutes, adopted contemporaneously with the enactment of the legislation by the Department of Managed Health Care, requires calculation of "the average premium paid by a subscriber" by reference to the MRMIP Board's weighted average methodology. In particular, paragraph 22 alleges, "Shortly after sections 1399.805 and 1399.811 were enacted in 2000, "representatives from the MRMI[P Board], the Department of Managed Health Care (DMHC) and the Department of Insurance (DOI) met to work out implementation details—including how to calculate 'the average premium paid.' They discussed what would be the appropriate way for the MRMI[P Board] to provide this data to the DMHC and the DOI. The agreement, pursuant to the requests of the DMHC and the DOI, was that the MRMI[P Board] provide a weighted average by region and age range, i.e., the 'average premium paid.'"
The policy upon which Lample relies was not enacted as a formal regulation despite the Department's apparent authority to do so. (See § 1399.817 [vesting the director of the Department of Managed Health Care with the discretion to "issue regulations that are necessary to carry out the purposes of this article"].) What significance, therefore, does this alleged agency interpretation of the statutory language have? In Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1 (Yamaha)the Supreme Court distinguished the level of judicial deference to be accorded an agency's quasi-legislative acts, in which the agency exercises its delegated lawmaking power, from interpretative acts, in which the agency gives its view of the meaning or legal effect of a statute or regulation, "questions lying within the constitutional domain of the courts." (Id. at p. 11.) Although courts are bound by an agency's rulemaking as long as it is authorized by the enabling legislation, the binding effect of an agency's interpretation of a statute or regulation is "fundamentally situational." (Id. at p. 12.) "Its power to persuade is both circumstantial and dependent on the presence or absence of factors that support the merit of the interpretation." (Id. at p. 7.) Thus, when "the meaning and legal effect of a statute is at issue, the agency's interpretation is one among several tools available to the court. Depending on the context, it may be helpful, enlightening, even convincing. It may sometimes be of little worth." (Id. at pp. 7-8; accord, California Veterinary Medical Association v. City of West Hollywood (2007) 152 Cal.App.4th 536, 555.)
The Yamaha Court identified two broad categories of circumstances relevant to a court's assessment of the weight due an agency's interpretation: "In the first category are factors that 'assume the agency has expertise and technical knowledge, especially where the legal text to be interpreted is technical, obscure, complex, open-ended or entwined with issues of fact, policy and discretion.'" (Yamaha, supra, 19 Cal.4th at p. 13.) The second category includes factors suggesting the agency decision is "likely to be correct." (Ibid.)This second group of factors includes "indications of careful consideration by senior agency officials," as well as evidence that the interpretation was contemporaneous with the enactment and long-standing. (Ibid.)
Lample argues the complaint alleges a long-standing regulatory interpretation by the Department of Managed Health Care to use the MRMIP weighted calculations to define the phrase "the average premium paid by a subscriber." That interpretation is entitled to deference, she contends, because the Department of Managed Health Care, based on its own substantial expertise in this field, has determined the MRMIP Board was in the best position to calculate the average premium paid by a MRMIP subscriber using the information available to it.
We agree a thoroughly considered, contemporaneous administrative interpretation of the statutory language that requires use of the MRMIP Board's weighted average methodology to calculate the "average premium paid by a subscriber" would be both reasonable and consistent with legislative intent: The weighted average methodology prevents higher premiums paid to a plan with only a few subscribers from having a disproportionate impact in the mean calculation, thus furthering the Legislature's objective of making such health plans more affordable. (See, e.g., Garfield Medical Center v. Belshe, supra, 68 Cal.App.4th at p. 808 [agency's interpretation of "mean" in statute to require a "weighted mean" to prevent hospitals from being treated "as if they were the same size when, in fact, that is not true" was a reasonable gap-filling interpretation of statute consistent with intent of legislation].) Such an interpretation also eliminates the problem of regulated entities using multiple methodologies to define the average premium paid, a problem that, if left unresolved, would undermine, rather than promote, the purpose of imposing rate caps in the first place.
The legal status, and thus the interpretative significance, of the policy alleged by Lample, however, is far from clear. An administrative interpretation by the Department of Managed Health Care may be entitled to some deference depending on the context in which it was adopted (see Yamaha, supra, 19 Cal.4th at p. 12); an "underground regulation," on the other hand, adopted in violation of the requirements of California's Administrative Procedure Act (APA) (Gov. Code, § 11400 et seq.) receives no deference at all. (See Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 576 [administrative interpretations that are not, but should have been, enacted as formal regulations under the APA are entitled to no deference; to hold otherwise would undermine the APA's purpose of eliminating the use of "underground regulations," that is, rules which only the government knows about]; Yamaha, at pp. 19-20 (conc. opn. of Mosk, J.) [Administrative "interpretations" that are not enacted as formal regulations fall into two categories: "The first is the class of regulations that should have been formally adopted under the APA but were not. In such cases the law is clear that in order to effectuate the policies behind the APA, courts are to give no weight to these interpretive regulations." The second is those interpretations that are not subject to the APA because "they are expressly or implicitly exempted from or outside the scope of APA requirements"].)
Lample indicates she can amend her complaint to allege facts clearly showing the policy is not akin to an underground regulation, but one that, based on the context and circumstances surrounding its adoption, is entitled to judicial deference. At the pleading stage, she is entitled to an opportunity to attempt to do so—that is, to allege facts and circumstances surrounding the adoption of the Department of Managed Health Care's policy to interpret the maximum rate cap in section 1399.805 and 1399.811 by reference to the MRMIP Board's weighted average methodology for calculating the average premium paid by a subscriber that would justify reliance by a court on that policy to resolve any possible ambiguity in the statutory language. (See Coca-Cola Co. v. State Bd. of Equalization (1945) 25 Cal.2d 918, 921 ["the contemporaneous administrative construction of the enactment by those charged with its enforcement and interpretation is entitled to great weight, and courts generally will not depart from such construction unless it is clearly erroneous or unauthorized"].)
At oral argument Blue Shield insisted the demurrer was properly sustained because it would violate due process to impose civil liability based on an agency interpretation of which it had no notice. Blue Shield's purported lack of notice of the Department of Managed Health Care's interpretation of the governing statutes was not the basis for the court's order, nor would it have been proper for the court to make such a determination on demurrer. A due process violation is not apparent from the face of the complaint; and any analysis of that issue, which rests on the facts and circumstances surrounding the Department of Managed Health Care's adoption of the interpretation asserted by Lample, cannot properly be made from the limited evidentiary presentation offered in support of Blue Shield's demurrer.
b. Blue Shield's argument its rates were approved by the Department of Managed Health Care does not support the trial court's order sustaining the demurrer without leave to amend
Blue Shield opposes affording Lample the opportunity to amend her complaint, asserting her UCL claim fails as a matter of law because the MRMIP Board has no authority to regulate health care service plans. This is true, of course, but immaterial. Lample's contention is not that Blue Shield violated a MRMIP Board regulation but rather that Blue Shield violated sections 1399.805 and 1399.811 as interpreted by Blue Shield's own regulator, the Department of Managed Health Care.
Indeed, citing Yamaha, supra, 19 Cal.4th 1, Blue Shield has acknowledged an administrative interpretation of sections 1399.805 and 1399.811 by the Department of Managed Health Care would be highly significant in determining whether it had violated the statutes' mandatory rate caps, but argues the Department stated in its 2009 position paper in support of AB 718 that it had not taken any formal position as to which methodology should be used to calculate the average premium paid by a MRMIP subscriber. Whether or not judicial notice of a legislative position paper was proper under Evidence Code section 452, subdivision (c) —an issue the parties vigorously dispute— the Department's statement in 2009 that it had no formal interpretation of the phrase "average premium paid by a subscriber" does no more, at least on demurrer, than highlight a factual dispute regarding Lample's allegation the Department had a consistent and long-standing interpretation prior to 2009 that required use of the MRMIP Board methodology, an allegation supported by information contained in documents judicially noticed by the trial court at Lample's request.
Evidence Code section 452, subdivision (c), permits judicial notice of "[o]fficial acts of the legislative, executive, and judicial departments of the United States and of any state of the United States."
Even if the document itself may be subject to judicial notice, judicial notice of the truth of the matters stated in the document is improper. (See Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063 ["[w]hile courts may notice official acts and public records, 'we do not take judicial notice of the truth of all matters stated therein'"], overruled on another ground in In re Tobacco Cases II (2007) 41 Cal.4th 1257, 1262, 1276.)
Blue Shield also argues it cannot, as a matter of law, be liable under the UCL for doing something its regulator expressly approved. (See § 1344, subd. (d) ["[n]o provision of this chapter imposing any liability applies to any act done or omitted in good faith in conformity with any rule, form, order or written interpretative opinion of the director"]; see also Puentes v. Wells Fargo Home Mortgage, Inc. (2008) 160 Cal.App.4th 638, 644 [when Legislature has permitted certain conduct, courts may not override that determination by declaring such conduct to be actionable under Bus. & Prof. Code, § 17200].) This argument, which relies, in part, on the truth of statements contained in the Department of Managed Health Care's position paper in support of AB 718, is fundamentally flawed: The Department's position paper simply stated new legislation was necessary to ensure consistency in application by its regulated entities. Nothing in that paper establishes the Department "approved" Blue Shield's methodology, and no other regulatory approval of Blue Shield's conduct was before the trial court.
Asked at oral argument about the basis for Blue Shield's contention its rates had been expressly approved by the Department of Managed Health Care, counsel referred only to a July 27, 2010 letter written by an assistant deputy director of the Department's office of legal services to a dissatisfied insured, which states, "Regulators acknowledge that the statute was open to varying interpretations, and that either a 'straight average' or a 'weighted average' would be permissible absent further clarification." Even were this letter properly subject to judicial notice as part of the legislative history of AB 718—a questionable assumption (see, e.g., Quintano v. Mercury Casualty Co. (1995) 11 Cal.4th 1049, 1062, fn. 5)—and apart from the hearsay problem discussed above, the author's invocation of the opinion of undefined "regulators" without any further supporting detail or citation cannot, on demurrer, be construed as approval of Blue Shield's allegedly unlawful pricing practices.
Blue Shield also suggests the UCL action fails as a matter of law because, apart from any express approval, the Department of Managed Health Care implicitly approved its methodology by not bringing an enforcement action against it or otherwise alerting it that it was not, or had not been, in compliance with the statutory rate caps. Contrary to Blue Shield's contention, the absence of an enforcement action does not immunize its allegedly unlawful pricing activities. A UCL action for violations of the Knox-Keene Act is independent of any enforcement action and may be maintained whether or not an enforcement action has been initiated. (Blue Cross of California, Inc. v. Superior Court (2009) 180 Cal.App.4th 1237, 1251 (Blue Cross); cf. Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 216-217 [private individual may bring UCL claim for Knox-Keene Act violation even though statute does not expressly authorize private right of action.)
MacKay v. Superior Court (2010) 188 Cal.App.4th 1427, 1435, on which Blue Shield relies, is inapposite. MacKay held that the Department of Insurance's approval of a rate premium immunized the insurer from a civil action challenging the use of that premium. Citing Insurance Code sections 1860.1 and 1860.2, the Court of Appeal held the Insurance Commissioner has exclusive jurisdiction over issues related to ratemaking; insurance rates could only be challenged under statutes and regulations pertaining to the Insurance Code; and approval of rates by the Department of Insurance means the rate has the "imprimatur" of the Department of Insurance and may not be challenged in a civil action, under the UCL or otherwise. (MacKay, at pp. 1442-1444.) Unlike the Department of Insurance, the Department of Managed Health Care is not vested with the authority to determine rates (see § 1367 ["[n]othing in this section shall be construed to permit the director to establish the rates charged subscribers and enrollees for contractual health care services"]); and, as we have explained, nothing in the Knox-Keene Act enforcement provisions or any other statute prohibits a private individual from bringing his or her own UCL action for Knox-Keene Act violations (Blue Cross, supra, 180 Cal.App.4th at p. 1251).
c. Lample adequately alleged a cause of action for an unlawful business practice
At an even more basic level, and separate from the question whether any ambiguity in the statutory language has been resolved by a properly adopted, longstanding administrative interpretation of sections 1399.805 and 1399.811, Lample's claim that Blue Shield has engaged in an unlawful business practice properly survives a demurrer. Even if there is more than one lawful way to set premiums for HIPPA PPO subscribers under sections 1399.805 and 1399.811, Lample has alleged the methodology used by Blue Shield violates the statutory mandate (that is, capping its rates at the average premium paid by a similarly situated MRMIP subscriber). Lample's second amended complaint alleges Blue Shield calculates a straight average of the rates charged by the participating plans in each rating cell and employs that average to set its premiums, rather than using the average of the premiums paid by similar subscribers. Whether that is true and, if so, whether "rates charged" and "premiums paid" are functionally synonymous in this context, is impossible to determine without knowing what Blue Shield actually does. Although it certainly might be more efficient for the trial court not "to drag out this case" by accepting Blue Shield's or the Department of Managed Health Care's description of "the procedures which have been employed to date," a demurrer tests the sufficiency of a complaint based only on the facts included in the complaint, those subject to judicial notice and those conceded by the plaintiff. (See Evans v. City of Berkeley (2006) 38 Cal.4th 1, 20.) Any presentation of the details of Blue Shield's computation of HIPPA PPO premiums and the consequent determination whether its methodology violated sections 1399.805 and 1399.811 must await summary judgment or trial. Accordingly, whether or not Lample is ultimately able to prove her allegations, at this nascent stage of the proceedings, she has sufficiently stated a UCL claim based on an unlawful business practice.
A simple example illustrates the difference as we understand it. If two providers offer HIPAA PPO plans to eligible individuals in a particular rating cell—one at $100/month; the other at $150/month—the average monthly rate charged by the providers is $125 regardless of the number of subscribers to each plan. If there are 90 subscribers to the $100 plan and 10 subscribers to the $150 plan, however, the average monthly premium paid by a subscriber, using a weighted mean, is $105.
4. Lample Should Be Given the Opportunity To Amend Her Complaint To State a Cause of Action for an Unfair Business Practice
Lample contends the complaint states, or at least can be amended to state, a cause of action for an "unfair" business practice under Business and Professions Code section 17200. (Cel-Tech, supra, 20 Cal.4th at p. 181 [UCL makes actionable practices that are unfair even if not unlawful].) Before the Supreme Court's decision in Cel-Tech, appellate courts had broadly construed the term "unfair" within the meaning of the UCL to mean a business practice that offends "an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers." (People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 530.) Determining whether a business practice was unfair required a balancing of "'utility of the defendant's conduct against the gravity of the harm to the alleged victim . . . .'" (State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1104.)
In Cel-Tech, supra, 20 Cal.4th 163, a case between competitors involving allegations of below-cost sales, the Supreme Court disapproved the broad sweep to the term "unfair" utilized by the Courts of Appeal. The Cel-Tech Court explained the definitions articulated were "too amorphous" and provided "too little guidance to courts and businesses." (Id. at p. 185; see ibid. ["[a]n undefined standard of what is 'unfair' fails to give business adequate guidelines as to what conduct may be challenged and thus enjoined and may sanction arbitrary or unpredictable decisions about what is fair or unfair," in some cases even leading to the "enjoining or procompetitive conduct and thereby undermin[ing] consumer protection"].) Borrowing from section 5 of the Federal Trade Commission Act (15 U.S.C., § 45), the Court adopted a new definition of "unfair": "[W]hen a plaintiff who claims to have suffered injury from a direct competitor's 'unfair' act or practice invokes [Business and Professions Code] section 17200, the word 'unfair' in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or harms competition." (Cel-Tech, at p. 187.) The Court made clear its holding was limited to harm suffered by a competitor, not by a consumer. (Id. at p. 187, fn. 12 ["[w]e also express no view" on the application of this test to consumer injuries].)
Since Cel-Tech, the Courts of Appeal have been divided on the definition of "unfair" applicable to consumer cases. (See, e.g., Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 286 ["[w]e conclude that the [pre-Cel-Tech]balancing test should continue to apply in consumer cases"]; Gregory v. Albertson's, Inc. (2002) 104 Cal.App.4th 845, 854 [Cel-Tech requires a more limited definition of "unfair"; "the public policy which is a predicate to the action must be 'tethered' to specific constitutional, statutory, or regulatory provisions"]; Bernardo v. Planned Parenthood Federation of America (2004) 115 Cal.App.4th 322, 353 [same]; see generally Bardin v. DaimlerChrysler Corp. (2006) 136 Cal.App.4th 1255, 1266-1267 [identifying division in appellate courts over which test to apply after Cel-Tech].)
As we recently held in Klein v. Chevron USA (Jan. 25, 2012, B219113) _ Cal.App.4th _, a case decided just this month, the definition of unfair formulated by our Division Eight colleagues in Camacho v. Automobile Club of So. Calif. (2006) 142 Cal.App.4th 1394 is particularly persuasive. As the Camacho court recognized, pre-Cel-Tech definitions of "unfair" are amorphous whether the injury involves a competitor or a consumer. (See Camacho, at p. 1402 ["The question is whether Cel-Tech's definition of 'unfair' overrules appellate court opinions that use other definitions. We think that it does. Definitions that are too amorphous in the context of anticompetitive practices are not converted into satisfactorily precise tests in consumer cases. This squares with the fact that, in disapproving appellate court opinions defining 'unfair' in 'amorphous' terms, the Supreme Court did not hold that the old definitions were appropriate in consumer cases."].) On the other hand, requiring the alleged "unfair" practice to be "tethered" to a specific constitutional, statutory or regulatory provision, as some courts have required after Cel-Tech (see, e.g., Durell v. Sharp Healthcare (2010) 183 Cal.App.4th 1350, 1367; Gregory v. Albertson's, Inc., supra, 104 Cal.App.4th at p. 854), undermines "the broad scope" of Business and Professions Code section 17200's intent to deal with "the innumerable new schemes that the fertility of man's invention can contrive." (Camacho, at p. 1403, citing Barquis v. Merchants Collections Assn. (1972) 7 Cal.3d 94, 112.) In fact, such a limited definition of "unfair" would undermine the UCL's intended breadth by "undercut[ting] the ability of the courts to deal with new situations and new abuses." (Camacho, at pp. 1402-1403.)
Echoing Cel-Tech's reference to section 5 of the Federal Trade Commission Act in UCL competitor cases, the Camacho court borrowed that section's definition of "unfair" for use in UCL consumer cases, holding a business practice is unfair under Business and Professions Code section 17200 if: (1) the consumer injury is substantial; (2) the injury is not outweighed by any countervailing benefits to consumers or competition; and (3) the injury could not have reasonably been avoided by consumers themselves. (Camacho, supra, 142 Cal.App.4th at p. 1403.) The court explained that definition is "on its face geared to consumers and for that reason appropriate in consumer cases. It is also suitably broad and is therefore in keeping with the 'sweeping' nature of [Business and Professions Code] section 17200." (Ibid.)
Under this well-reasoned definition of an unfair business practice, the order sustaining the demurrer without leave to amend must be reversed. The complaint alleges Blue Shield disregarded the MRMIP Board's rate cap schedules, which its competitors believed they were required by law to follow, resulting in excessive premiums charged to Blue Shield's HIPAA PPO subscribers. In addition to the allegations previously pleaded, Lample asserts she can amend the complaint to allege the following: Blue Shield's pricing strategy, even if not illegal per se, was intended to drive its HIPAA-eligible consumers to its competitors, thereby reducing Blue Shield's financial losses from providing HIPAA PPO products at prices subject to rate caps. In addition, once the HIPAA eligible person has subscribed to Blue Shield, believing Blue Shield's pricing is subject to the same methodologies as other HIPAA PPO products, he or she is no longer defined as a federally eligible individual and thus must remain with Blue Shield, foreclosed from obtaining HIPAA PPO coverage from a Blue Shield competitor. Taken together, those allegations are sufficient to plead a substantial injury to both consumers and to competition, one that consumers, unaware of Blue Shield's lack of compliance with MRMIP Board formulas, could not reasonably have avoided.
Blue Shield disputes these allegations, of course; but this only serves to highlight the impropriety of resolving on demurrer whether Blue Shield's conduct was unfair within the meaning of Business and Professions Code section 17200. (See Linear Technology Corp. v. Applied Materials, Inc. (2007) 152 Cal.App.4th 115, 134-135 ["[w]hether a practice is . . . unfair is generally a question of fact which requires 'consideration and weighing of evidence from both sides' and which usually cannot be made on demurrer"]; McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1472, 1473 [same].)
In sum, while the trial court's failure to consider this claim in the context of Blue Shield's demurrer is understandable—the UCL claim under the "unfair" prong of the statute was not specifically alleged as such—a demurrer cannot be properly sustained without leave to amend if it states, or can be amended to state, a cause of action under any possible legal theory. (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 967.) Because the operative second amended complaint can be amended to state a claim for an unfair business practice within the meaning of Business and Professions Code section 17200, leave to amend should be granted.
Blue Shield argues for the first time on appeal the court should exercise its discretion and dismiss this UCL case under the judicial abstention doctrine. (See Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 496 ["[a]s a general matter, a trial court may abstain from adjudicating a suit that seeks equitable remedies if 'granting the requested relief would require a trial court to assume the functions of an administrative agency or to interfere with the functions of an administrative agency'"]; Klein v. Chevron USA, supra, _ Cal.App.4th _ [same].) Lample argues Blue Shield has forfeited the argument by failing to raise it in the trial court. (Sea & Sage Audubon Society, Inc. v. Planning Com. (1983) 34 Cal.3d 412, 417 ["'issues not raised in trial court cannot be raised for first time on appeal'"]; In re Marriage of Eben-King & King (2000) 80 Cal.App.4th 92, 117 [same].) In light of our reversal of the judgment and remand to the trial court, Blue Shield will have the opportunity to raise, and the trial court will be able to consider, that claim in the first instance. (See Arce, at p. 482 [decision whether to dismiss case under doctrine of judicial abstention is matter within trial court's discretion].)
5. Lample's Fraud Claim Is Insufficient as a Matter of Law
The elements of a cause of action for fraud based on concealment are (1) the defendant concealed or suppressed a material fact; (2) the defendant was under a duty to disclose the fact to the plaintiff; (3) the defendant intentionally concealed or suppressed the fact with the intent to defraud the plaintiff; (4) the plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known of the concealed or suppressed fact; and (5) as a result of the concealment or suppression of the fact, the plaintiff sustained damage. (Kaldenback v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 850; Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1126-1127.)
Lample alleges Blue Shield defrauded members of the putative class by failing to disclose in its materials, including rate books supplied to members and prospective members, that its rates were calculated using a methodology different from that utilized by the MRMIP Board and required by the Department of Managed Health Care's gap-filling interpretation of sections 1399.805 and 1399.811. The duty to disclose, she asserts, arises under section 1399.813, which provides, "In connection with the offering for sale of any plan contract to an individual, each plan shall make a reasonable disclosure as part of its solicitation and sales materials, or all individual contracts."
The fraud claim is without merit. Section 1399.813 simply requires disclosure of all material terms of the contracts, including rates; Blue Shield made those disclosures. Blue Shield had no duty to disclose to its subscribers the methodology it used to derive its rates or their legal ramifications. (See Levine v. Blue Shield of California, supra, 189 Cal.App.4th at pp. 1132-1133 [insurers and health care service plans have no duty to disclose to subscriber internal rate making or pricing procedures]; cf. California Service Station Etc. Assn. v. American Home Assurance Co. (1998) 62 Cal.App.4th 1166, 1173 [insurer has no duty to disclose information concerning internal business operations]; see also Sweat v. Hollister (1995) 37 Cal.App.4th 603, 608-609 [failure to disclose legal ramification of a fact is not same as failure to disclose material fact; the former does not state a cause of action for fraud], disapproved on another ground in Santisas v. Goodin (1998) 17 Cal.4th 599, 609, fn. 5; Bledsoe v. Watson (1973) 30 Cal.App.3d 105, 110 ["misrepresentations of law do not amount to actionable fraud"].) Accordingly, the trial court did not err in sustaining the demurrer to this cause of action without leave to amend.
Lample also alleged Blue Shield materially misrepresented to the Department of Managed Health Care that it was in compliance with sections 1399.805 and 1399.811. Because the alleged misrepresentation was made to the Department, not to Lample, and she does not allege she relied on it, that allegation cannot support her fraud claim.
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DISPOSITION
The judgment of dismissal is reversed, and the matter is remanded for further proceedings not inconsistent with this opinion. The portion of the order sustaining the demurrer to the fraud claim without leave to amend is affirmed. Lample is to recover her costs on appeal.
PERLUSS, P. J.
We concur:
WOODS, J. JACKSON, J.