Majority
3 Hospitals often enter into closed or "exclusive contracts ... with healthcare entity-based physicians such as pathologists, radiologists, and anesthesiologists, ... for a variety of reasons including: (1) improving the efficiency of the healthcare entity; (2) standardization of procedures; (3) securing greater patient satisfaction; (4) assuring the availability of specific services; (5) cost containment; and (6) improving the quality of care." (1 Health Law Practice Guide (2018) Exclusive Contracts, § 2:24.)
The action plan adopted by the hospital indicated that "the physician who had the overwhelming utilization of droperidol and in several cases did not follow the hospital policy on droperidol use, was referred to peer review and was suspended from active practice by his group pending further investigation." The state surveyor approved the action plan and lifted the "immediate jeopardy" declaration.
In the weeks following, the hospital's anesthesia department peer review committee met, discussed, and approved a recommendation that plaintiff complete a continuing education course through the Physician Assessment and Clinical Education (PACE) program at the University of California, San Diego. The committee also recommended that plaintiff's "return to clinical practice" be "dependent upon documented completion of phase I and phase II of the PACE program as well as completion of any recommendations made by that program and the peer review committee."
The president of the hospital's medical staff forwarded the recommendation to Donovan and requested that East Bay Group implement the recommendation. The president's memorandum to Donovan states that the medical staff leadership "will monitor the situation, and reserves the right to take action pursuant to the medical staff bylaws, at any time, if deemed reasonable and warranted to protect the interests of patients." ( Ibid .)
When plaintiff was informed that he "needed to go through the PACE program and pass parts I and II before [he] would be returned to Summit Hospital," he asked if he could appear before "the peer review body" to discuss those requirements. He was told that PACE was his only alternative and that the medical executive committee was "aware of [plaintiff's] situation and they would not look kindly on [him] appearing before them." Plaintiff then completed the PACE program and returned to work at the hospital on November 4, 2011.
On November 10, O'Brien asked a hospital pharmacy manager to review plaintiff's charts and ensure "that documentation was okay." The pharmacy manager reported that in "2 of the 4 records" he had reviewed, plaintiff "failed to use the leading zero that was required by the hospital's policy."[5]
5 According to evidence at trial, the use of a "leading zero" means "put[ting] a zero before a decimal point and not leav[ing] a decimal point without a zero in front of it." According to the state surveyor, this practice ensures "there's not a tenfold error, a decimal error" in administering medication.
On November 20, Donovan advised plaintiff that the hospital administration was "unhappy with [his] errors" and did not want him returned to the anesthesia schedule. He told plaintiff he could resign his employment with East Bay Group, but if he declined, Donovan "would move forward with termination." Plaintiff refused to resign, and following a vote by the shareholders of the East Bay Group, plaintiff's employment was terminated.
Thereafter, plaintiff filed a complaint against the hospital alleging causes of action for violation of his right to notice and a hearing under section 809 and his common-law right to fair procedure, as well as related causes of action for aiding and abetting and conspiracy.[6]
Following a court trial, judgment was entered in favor of plaintiff. The court found that "the action taken by [the hospital] in removing plaintiff from the anesthesia schedule in July and November 2011, which on each occasion was indisputably for a medical disciplinary cause or reason ..., constituted a summary suspension of plaintiff's right to exercise his privileges and use the facilities of the hospital, and could only be lawfully undertaken through a formal peer review and appeal procedure as required by sections 805 and 809.... The failure by [the hospital] to provide notice to plaintiff of the charges against him and the right to a hearing constituted a violation of ... section 809.5." The court awarded plaintiff $3,867,122 in damages, including $650,910 for "tax neutralization."
The hospital timely filed a notice of appeal and plaintiff timely filed his notice of cross-appeal.
6 Additional causes of action for intentional interference with prospective economic advantage and interference with his right to practice his profession were resolved against plaintiff on summary judgment. Plaintiff's complaint also alleged numerous causes of action against East Bay Group that were settled prior to trial.
Section 805 requires that a report be filed with the applicable licensing agency when "[a] licentiate's membership, staff privileges, or employment is terminated or revoked for a medical disciplinary cause or reason" or "[r]estrictions are imposed ... on staff privileges, membership, or employment for a cumulative total of 30 days or more for any 12-month
The hospital does not dispute that if its medical executive committee had directly revoked or reduced plaintiff's clinical privileges, plaintiff would have been entitled to the due process protections provided by its medical staff
The hospital admittedly did not provide notice or a hearing. The hospital does not, and cannot, claim that the review conducted by the anesthesiologist department's peer review committee was sufficient. Under the hospital's medical staff bylaws, the only entity with the ability to restrict or terminate plaintiff's medical staff privileges was the medical executive committee and it is undisputed that this committee failed to act in this instance. Contrary to the hospital's argument, the trial court's conclusion does not impute to the hospital actions subsequently taken by East Bay Group but holds the hospital responsible for its own actions and failures to act.
Nor can the hospital establish that it delegated its duties to East Bay Group under section 1.13 of exhibit 1.2(c) to the contract, which requires East Bay Group to develop and maintain an independent peer review process for its physicians. As the trial court concluded, the language in the agreement does not clearly state that the East Bay Group peer review committee "is responsible for protecting the full panoply of rights guaranteed physicians under sections 805 and 809." Nothing in the medical staff bylaws requires or authorizes a closed department to conduct peer review in lieu of the procedures described in the bylaws. Moreover, as the trial court also noted,
Accordingly, the trial court properly determined that the hospital violated plaintiff's statutory and common law right to due process by substantially restricting his medical privileges without notice and a hearing.
2. Plaintiff's lost earnings were caused by the violation of his due process rights .
The judgment orders the hospital to pay damages in the following amounts: $1,136,906 in lost income, $1,159,354 in future lost income,
9 Section 4.4 of the hospital agreement provides: "Continuation of this agreement is not a condition of medical staff membership. Therefore, this agreement may be terminated in accordance with this section 4 without the necessity of a hearing before the hospital's board of directors, a committee of the medical staff, or any other body. Group represents and warrants that all physicians providing administrative services or coverage services under this agreement are aware of and accept this condition."
10 In Skelly v. State Personnel Board (1975) 15 Cal.3d 194 , 206, 124 Cal.Rptr. 14 , 539 P.2d 774 , the court held that the California civil service employment scheme confers upon permanent employees "a property interest in the continuation of [their] employment which is protected by due process." A physician's hospital privileges also constitute a property right that cannot be terminated absent a showing of adequate cause in a proceeding consistent with minimal due process requirements. ( Anton v. San Antonio Community Hospital, supra, 19 Cal.3d at pp. 824-825, 140 Cal.Rptr. 442 , 567 P.2d 1162 .)
11 The hospital's reliance on Viner v. Sweet (2003) 30 Cal.4th 1232 , 135 Cal.Rptr.2d 629 , 70 P.3d 1046 is also misplaced. In that case, the court held that the standard of "but for" causation, requiring the client of an attorney to prove that the negligence of the attorney was a substantial factor in causing the client's damage, applied equally to transactional and litigation malpractice actions. The court explained that "[t]he purpose of [the] requirement ... is to safeguard against speculative and conjectural claims. [Citation.] It serves the essential purpose of ensuring that damages awarded for the attorney's malpractice actually have been caused by the malpractice." ( Id . at p. 1241, 135 Cal.Rptr.2d 629 , 70 P.3d 1046 .) Here, it is not speculative to conclude that plaintiff's lost wages were caused by the unlawful termination of his hospital privileges.
The federal authorities permit, but do not require, the trial court to adjust a "lump-sum back-pay award to account for the corresponding increase in [ ]
Here, the trial court found that although plaintiff was the prevailing party, the hospital's conduct in defending the action was not frivolous, unreasonable, without foundation, or in bad faith. The court explained that the hospital's defense, taken as a whole, was not "so completely lacking in objective merit that no reasonable attorney would have thought [the hospital's] defense to be tenable." The court explained, the hospital's "defense was based on the fact that it did not provide peer review to plaintiff, and thus, was not required to comply with the procedure governing peer review. [The hospital] argues plaintiff was employed by [East Bay Group], and its administrative staff asked [East Bay Group] to remove plaintiff from the schedule and to terminate plaintiff's membership in [East Bay Group] as allowed under its contract .... Although there was some inconsistency with regard to the evidence about whether [the hospital, East Bay Group], or both were responsible for the decision to suspend and terminate plaintiff's services, [the hospital's] factual assertions were supported by the evidence, for the most part, and its legal contention that there is no requirement to prepare an 805 report in the absence of peer review had some support. [¶] [The hospital's] defense failed because the contractual arrangement between [the hospital] and [East Bay Group] created a situation in which plaintiff could be removed for a medical disciplinary reason from the anesthesiology schedule, effectively
Disposition
The judgment is affirmed. Plaintiff shall recover his costs on appeal.
WE CONCUR:
TUCHER, J.
BROWN, J.
Defendants Sutter East Bay Hospitals and Alta Bates Summit Medical Center (collectively, the hospital) appeal a judgment awarding plaintiff Dr. Kenneth Economy substantial damages based on the suspension and later termination of his "staff privileges, membership, or employment" with the hospital. The termination was "based on a medical disciplinary cause or reason" without prior notice and a hearing in violation of Business and Professions Code[1] section 809 et seq. The hospital contends the court erred in concluding that plaintiff was entitled to notice and a hearing prior to his suspension and termination and, alternatively, if he was entitled to any statutory protections, he failed to establish that the hospital's failure to hold a hearing caused his damages. The hospital also challenges the inclusion of approximately $650,000 in damages to account for "tax neutralization" on the ground that the evidence in support of the award was speculative.[2] In a cross-appeal, plaintiff contends the court erred in denying his motion for attorney fees and costs under section 809.9. We find no error and shall affirm the judgment in full.
Background
The factual background is undisputed in most material respects. Plaintiff is an anesthesiologist who practiced at the hospital
1 All statutory references are to the Business and Professions Code unless otherwise noted.
2 Dignity Health and Memorial Health have filed an amicus curiae brief in support of the hospital arguing that before filing an action for damages, plaintiff was required to petition for a writ of mandate to compel the hospital to provide a peer review hearing. The trial court rejected a similar argument made by the hospital on the ground that plaintiff was not required to exhaust such an administrative remedy because the hospital did not make that remedy available to him. ( Westlake Community Hospital v. Superior Court (1976) 17 Cal.3d 465 , 478, 131 Cal.Rptr. 90 , 551 P.2d 410 .) The hospital has not challenged this ruling on appeal and we therefore decline to consider the argument further. ( California Building Industry Assn. v. State Water Resources Control Bd . (2018) 4 Cal.5th 1032 , 1048-1049, fn. 12, 232 Cal.Rptr.3d 64 , 416 P.3d 53 .) Amicus curiae's argument that plaintiff's damages should have been limited under the terms of plaintiff's employment agreement with East Bay Group is also beyond the scope of this appeal, as it was not made by the hospital in the trial court or on appeal. Amicus curiae's argument regarding causation is considered in connection with our discussion below.
In July 2011, the California Department of Public Health conducted an unannounced "medication error reduction plan" survey at the hospital to determine its compliance with state law. The surveyor found that plaintiff was responsible for numerous deficiencies regarding the use of the drug droperidol and that the deficiencies "placed patients at risk for undue adverse medical consequences." Accordingly, the surveyor declared that the hospital was in "immediate jeopardy" until a written plan correcting the violations was prepared and accepted.[4]
The hospital's administrators quickly formed a response team and contacted the anesthesia department medical director, Dr. Marc Schroeder. Because Schroeder was on vacation, he referred the inquiry to Dr. John Donovan, East Bay Group's president, designating Donovan to act as his representative.
Donovan met with the hospital's response team, including Dr. Steven O'Brien, the hospital's vice president of medical affairs. O'Brien asked and Donovan agreed to remove plaintiff from the anesthesia schedule pending further investigation. Thereafter, Donovan met with plaintiff and
4 "Immediate jeopardy" determinations are rare; they require an immediate response from a hospital's administration; and they typically carry a regulatory fine. The trial court found that the "immediate jeopardy" finding was an "emergency situation" for the hospital.
In subsequent communications between the hospital and East Bay Group, O'Brien informed Donovan that the hospital was "not comfortable with the quality of care provided by [plaintiff] and cannot approve anesthesia coverage schedules containing" him. Donovan confirmed with O'Brien that the hospital was "asking [East Bay Group] to remove [plaintiff] under" the provision of the hospital's contract with East Bay Group that "allows the hospital to remove any physician that " 'performs an act or
I. The Hospital's Appeal
1. The hospital violated plaintiff's rights by suspending his hospital privileges without providing the required notice and hearing .
California common law has long recognized a hospital's duty to provide certain protections to a physician in proceedings regarding staff privileges. In Anton v. San Antonio Community Hospital (1977) 19 Cal.3d 802 , 815, 140 Cal.Rptr. 442 , 567 P.2d 1162 , the court held that "a physician may neither be refused admission to, nor expelled from, the staff of a hospital, whether public or private, in the absence of a procedure comporting with the minimum common law requirements of procedural due process." Due process in this context requires, at a minimum, that a physician be afforded, among other rights, "a hearing before the deciding board"; "a written statement of the charges against him"; and "the right to call his own witnesses." ( Id . at pp. 815-816, fn. 12, 140 Cal.Rptr. 442 , 567 P.2d 1162 .)
"The Legislature subsequently codified the common law fair procedure doctrine in the hospital peer review context by enacting ... sections 809 to 809.8 in 1989. [Citations.] This legislation-passed in response to the federal Health Care Quality Improvement Act of 1986 ( 42 U.S.C. §§ 11101 - 11152 ), which provides immunity from money damages for peer review actions taken in compliance with the statute's requirements-established the minimum procedures that hospitals must employ in certain peer review proceedings.
Under California law, a hospital's medical staff is required to adopt written bylaws that establish formal procedures for evaluating "staff applications and credentials, appointments, reappointments, assignment of clinical privileges, appeals mechanisms and such other subjects or conditions which the medical staff and governing body deem appropriate." ( Cal. Code Regs., tit. 22, § 70703, subd. (b).) The medical staff also must provide a means for enforcing its bylaws, including adoption of a peer review process, which is subject to the minimum procedural standards set by the above statutes. ( Smith v. Selma Community Hospital (2008) 164 Cal.App.4th 1478 , 1482, 80 Cal.Rptr.3d 745 ; §§ 809-809.9 [minimum procedural standards for peer review proceedings].) To comply with these requirements, article VIII, section 8.1(F) of the hospital's medical staff bylaws provides, "any one of the following adverse actions or recommended actions shall be deemed grounds for a hearing: [¶] ... [¶] 3. Revocation or reduction of clinical privileges, based on professional competence or conduct which affects or could affect adversely the health or welfare of a patient or patients; [¶] ... [¶] 5. Suspension of ... clinical privileges for more than fourteen (14) days based on professional competence or conduct which affects or could affect adversely the health or welfare of a patient or patients; and [¶] 6. Any other disciplinary action or recommendation
7 Sections 809.2 through 809.4 govern the rights of parties at the hearing.
The trial court rejected these arguments, finding that under the hospital's approach "a hospital could effectively avoid complying with the notice and hearing requirements of sections 805 and 809 by simply relying on its contracts with third-party employers as a way to terminate the services of physicians whenever a hospital administrator determines there is a medical disciplinary reason." We agree that the hospital's position is untenable. If accepted, plaintiff's right to practice medicine would be substantially restricted without due process and, despite the hospital's concern that plaintiff was endangering patient safety, the state licensing board would never be notified.
The determination by the hospital that it would not approve an anesthesia coverage schedule on which plaintiff was included effectively directed East Bay Group to remove plaintiff from all schedules, as it had a right to do under section 4.2, subdivision (c) of its contract with East Bay Group. Its "request" that plaintiff be removed from the hospital's anesthesiology schedules, first temporarily and later permanently, necessarily resulted in a substantial reduction of plaintiff's staff privileges. The request was the functional equivalent of a decision to suspend and later revoke plaintiff's clinical privileges.
As the trial court explained, the hospital's argument that plaintiff's "privileges were not affected by its actions because he still had his privileges 'on paper' ... is based on a limited and unjustified view of the meaning of 'privileges' which overlooks the breadth of the statutory definition of the term as well as California Supreme Court jurisprudence involving adverse actions impacting a physician's right to use hospital facilities." Section 805, subdivision (a)(4), defines "staff privileges" as "any arrangement under which
8 Section 805, subdivision (a) defines a "peer review body" to include, among other obviously inapplicable groups, "A medical or professional staff of any health care facility or clinic licensed under Division 2 (commencing with Section 1200) of the Health and Safety code or of a facility certified to participate in the federal Medicare Program as an ambulatory surgical center."
Likewise, section 4.4 of the hospital's agreement with East Bay Group,
The hospital contends the judgment must be reversed because there is no substantial evidence to support the trial court's finding that the hospital's failure to provide notice and a hearing caused plaintiff's damages. The hospital argues plaintiff is not entitled to lost wages because "there was absolutely no evidence below to support the conclusion that plaintiff would have been exonerated at the hearing and would have continued to work at the hospital." The trial court rejected the hospital's argument that plaintiff was required to prove that he would have prevailed had a peer review hearing been held. The court explained, "The quality of plaintiff's care was not at issue in this litigation. [The hospital] failed to provide plaintiff with notice of the charges against him or of his right to a hearing before his peers. What the charges would have been and what might have occurred had peer review been made available to plaintiff, is pure conjecture. Having denied any responsibility for providing plaintiff with the opportunity for a hearing in connection with the summary suspension of plaintiff's privileges in July and November 2011, [the hospital] cannot avoid liability for its tortious conduct by claiming that plaintiff must now establish that he would have prevailed had a peer review proceeding actually occurred."
Although neither party cites authority addressing the appropriate remedy
Barber makes clear that whether the employer had a legitimate basis to terminate the employee's employment and whether the employee is entitled to reinstatement are questions entirely distinct from whether the employee is entitled to back pay for the period during which the discipline was invalid. Barber establishes without caveat that the employee is entitled to "back pay for the period of wrongful discipline" ( Barber v. State Personnel Board , supra , 18 Cal.3d at p. 402, 134 Cal.Rptr. 206 , 556 P.2d 306 ); what makes the discipline "wrongful" has nothing to do with whether the employer had a legitimate basis for terminating the employment. The discipline was wrongful solely because it was imposed in violation of the employee's right to due process.
Similarly, in this case the judgment does not depend on whether plaintiff ultimately would have prevailed at a peer review hearing. Even if plaintiff would not have prevailed, he is entitled to back pay for the period during which the discipline was invalid. There is no potential for endless and unlimited liability because of plaintiff's duty to mitigate his losses.
Ascherman v. San Francisco Medical Society (1974) 39 Cal.App.3d 623 , 114 Cal.Rptr. 681 , cited by the hospital, is distinguishable. In that case, the physician sought an injunction and damages in an action against various hospitals and others for conspiring to interfere with his practice of medicine. ( Id . at pp. 629-630, 114 Cal.Rptr. 681 .) The physician's complaint alleged that in furtherance of the conspiracy, the hospitals had terminated his hospital privileges without providing notice and a hearing as required by the Medical Staff Bylaws. (
The only element of the damages awarded plaintiff that the hospital specifically challenges is the $650,910 for tax neutralization. This amount was calculated "to offset the increased tax burden on plaintiff resulting from a lump sum award of damages as compared to what plaintiff would have owed in taxes if the earnings had been received sequentially each year." The amount was based on testimony by plaintiff's expert, economist Dr. Barry Ben-Zion.
Prior to trial, the court denied the hospital's in limine motion to exclude the expert's testimony on the grounds that it does not meet the requirements of the Kelly - Frye[12] test for admissibility of scientific evidence, or of Evidence Code sections 801 and 802 because it is highly speculative and based on information not reasonably relied upon by experts. On appeal, the hospital renews its arguments that the expert's calculations are "based on speculative assumptions about future tax rates remaining constant and the nature of plaintiff's future tax returns and income" that "should never have been admitted in the first place and do not constitute substantial evidence."
As the trial court noted with respect to the admissibility of the expert's testimony, "while there are no reported decisions in California on the concept of tax neutralization, the concept has been endorsed by ... federal appellate courts." (See Equal Employment Opportunity Commission v. Northern Star Hospitality, Inc . (7th Cir. 2015) 777 F.3d 898 ; Eshelman v. Agere Systems, Inc . (3d Cir. 2009) 554 F.3d 426 ; Sears v. Atchison, Topeka & Santa Fe (10th Cir. 1984) 749 F.2d 1451 ; Clemens v. CenturyLink Inc . (9th Cir. 2017) 874 F.3d 1113 , 1117.) The court noted further that "[t]he concept of compensating a plaintiff
12 People v. Kelly (1976) 17 Cal.3d 24 , 130 Cal.Rptr. 144 , 549 P.2d 1240 ; Frye v. United States (D.C. Cir. 1923) 293 F. 1013 .
Although an award to compensate for an income-tax disparity for lost future wages is inherently speculative, as is any award for lost future income, we see no reason why this factor cannot be established with sufficient certainty. As the trial court noted, plaintiff's expert provided "detailed testimony regarding his calculations of (i) plaintiff's total tax liability had plaintiff not been terminated and had he continued to earn income, (ii) the amount plaintiff would have to pay in taxes if awarded the computed loss of earnings (back and front pay), and (iii) the tax neutralization amount, i.e., the amount of money needed to generate a net amount equal to the adverse tax consequence." We agree with the trial court that the foundational information relied on by the expert, including the applicable tax rates, provided a reasonable basis for his opinions.
The hospital's reliance on Canavin v. Pacific Southwest Airlines (1983) 148 Cal.App.3d 512 , 196 Cal.Rptr. 82 is misplaced. In that case, that court held that in a wrongful death action it is "error to compute a survivor's lost support based upon the decedent's projected net income which would have been available for support except for the wrongful death." ( Id. at p. 522, 196 Cal.Rptr. 82 , italics added.) The court explained, "Numerous California decisions as well as rulings of the courts of other jurisdictions exclude income tax projections from the jury's consideration." ( Id . at p. 539, 196 Cal.Rptr. 82 (conc. & dis. opn. of Staniforth, J. & Brown, J.).) This is because, among other reasons, "tax consequences are collateral, speculative and conjectural." ( Id . at p. 541, 196 Cal.Rptr. 82 .) In that case, however, the court was concerned with reducing the amount of damages to account for the income taxes that might otherwise have been paid in the future. (See id . at p. 542, 196 Cal.Rptr. 82 [A "negligent defendant should not benefit by the fortuitous event the person injured may be subject (or not subject), in a totally unknown and unpredictable amount, to income tax."].) In contrast, the purpose of the award in the present case is to ensure that plaintiff is fully compensated for his losses. We agree that the expert here laid a sufficient foundation to establish the probability and reasonableness of the tax neutrality projections to justify reliance on those projections.
Section 809.9 requires the court to award attorney fees "to a substantially prevailing party" in an action "brought to
II. Plaintiff's Cross-appeal Section 809.9 requires the court to award attorney fees "to a substantially prevailing party" in an action "brought to
Plaintiff contends the trial court erred in finding that the hospital's conduct did not rise to the level of frivolous, unreasonable, without foundation, or in bad faith. The parties dispute whether this court should
Cases cited
- El-Attar v. Hollywood Presbyterian Medical Center 56 Cal.4th 976 p. 502
- Potvin v. Metro. Life Ins. Co. 22 Cal.4th 1060 p. 504
- Mateo-Woodburn v. Fresno Community Hospital & Medical Center 221 Cal.App.3d 1169 p. 505
- Abrams v. St. John's Hospital & Health Center 25 Cal.App.4th 628 p. 505
- Barber v. State Personnel Board 18 Cal.3d 395 p. 506
- Smith v. Selma Community Hospital 188 Cal.App.4th 1 p. 509
- Anton v. San Antonio Community Hospital 19 Cal.3d 802 p. 1156
- Smith v. Selma Community Hospital 164 Cal.App.4th 1478 p. 1157
- Mileikowsky v. West Hills Hospital & Medical Center 45 Cal.4th 1259 p. 1160
- Ascherman v. San Francisco Medical Society 39 Cal.App.3d 623 p. 1162
- Canavin v. Pacific Southwest Airlines 148 Cal.App.3d 512 p. 1164