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E-FILED
Charles L. Doerksen, #135423
5/4/2020 8:52 PM
DOERKSEN TAYLOR Superior Court of California
744 “P” Street, Suite 029 County of Fresno
Fresno, California 93721 By: Sergio Lopez, Deputy
Tel: 559 233 3434
Attorneys for defendant Harold Grooms, M.D.
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SUPERIOR COURT OF CALIFORNIA, COUNTY OF FRESNO
CENTRAL DIVISION - CIVIL UNLIMITED
OMNI WOMEN’S HEALTH MEDICAL Case No. 19CECG02730
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GROUP, 1Nc.,
MEMORANDUM 0F POINTS AND
Plaintiff, AUTHORITIES IN SUPPORT OF
V
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DEMURRER TO FIRST AMENDED
V. COMPLAINT
HAROLD GROOMS, M.D., Date: June 9, 2020
v
Time: 3:30 p.111. .
Defendant. Dept: 403
Complaint Filed: July 29, 201 9
Trial Date: Not Set
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Memorandum of Points and Authorities in Support 0f Demurrer t0 First Amended Complaint
H TABLE OF CONTENTS
INTRODUCTION / THE PRIOR DEMURRER
II. FACTUAL ALLEGATIQNS CONTAINED IN THE AMENDED COMPLAINT
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I
A4.
The Parties
B. Dr. Gfooms’ Compensation by plaintiff Omni Women’s Health
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C. Adjustments t0 Interim Payments and Laboratory Fees.
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1. Interim Payments (ACA block payments) and adjustments thereto
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2. Laboratory fees and adj ustments thereto
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D. Alleged Wrongful Acts by Dr. Grooms
O III. STANDARD 0F DECISION
H IV. THE AMENDED COMPLAINT DOES NOT CURE THE FATAL DEFENSE
N IDENTIFIED BY'THE ORDER SUSTAINING DEMURRER
U.)
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A.‘ The defect .in the original complaint Iidécntified by the Court
A B. I‘PlaintiffOmni Women’s Health’s amendments regarding the defect
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C. The Amended Complaint does hot plead a legally sufficient mistake
ON bec'ause the alleged mistake relates to a contingent possibiiity, not to -
fl a fact existing or‘ even contemplated at the time. of cohtracting
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D. The Amended Complaint does ndt allege any fraudulent conduct by
\O Dr. Grooms relating t0 his acquisition of the subj ect payment 10
O CONCLUSION 14
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Memorandum of Points and Authorities in Support of Demurrer to Complaint
p—t
TABLE 0F AUTHORITIES
.
9% ~
Ankeny v.Lockheed Missiles and Space C0.
(1979) 88 Cal.App.3d 531 >
I
Bahk ofNew Yofk Mellon v. Citibank, N.A. .
(2017) 8 Cal. App. 5th 935 13
Blank v. Kirwan
(1985) 39 Cal.3d 311, 318
De Castro & C0. ”v.
Liberty S.S.'ofPanama, SA.
O (1960) 186 Cal.App.2d 628
’—‘
Dodd v. Citizens Bank ofCOSta Mesa .
[\J
(1990) 222 Cal.App.3d 1624
>
U.)
Ferrick v. Santa Clara University
-b '(2014) 231 Cal.AppAth 1337 vll'
'UI
Gentry v. eBay, Inc. _
99 Ca1.App.4th 816
ON
(2002) 12
fl Games v. Countrywide Home Loans, Inc. (2011) 1
OO
92 Ca1.App.4th;1 149
I
O Klein v Chevron, U. S. A. Inc.
A
O (2012) 202 Cal. App. 4th 1342 7,8
H Kramer v Intuit, Inc. (2004)
N 121 Cal. App. 4th 574
UJ
McKell v. Washington Mutual Inc. (2006)
-l>
142 Cal. App. 4th 1457
U1
Masher v Mayacamas Corp (1989)
O\
215 Ca1.App.3d 1
‘
8,9
N Murphy v. BDO Seidman LLP (2003) '
'
‘00 113 Ca1.App. 4th 687 11
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MemOrandum 0f Points and Authorities in Support of Demurrer-to Complaint —ii—
H Rodas v. Spiegel
(2001) 87 Cal.App.4th.513
Ruscigno v. American National Can Campany, Inc.
’
(2000) 84 Ca1.App.4t_h 112
SCEcorp
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v.Superior Court (1992) -
3 Cal.AppAth 673
Schonfeldt 'v.
State ofCalz'fornz'a
(1998) 61 Ca1.App.4th- 1462
Service by Medallion, Inc. v. Clorox C0.
O (1996) 44 Cal.App.4th
p—n
1807 11
Wexford Underwriting Managers,
p—n
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Supervalu, Inc..v. Inc.
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(2009) 175 Cal.App.4th 7, 10
U)
p—A
'Woodring v. Basso
(1961) 195 Cal‘.App.2d 459 11
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Statutes‘and Regulations
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California Code of Civil Procedure, section 430.30.(a).)
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Califorfiia Corporations Code, section 3 12
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Ceilifornia Code of Regulatibns, section 5 1458.1(a)(1) -h
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California Welfare and Institutions Code, section 141 15.5 g
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California Welfare and Institutions Code, section 14176
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14177
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California Welfare and Institutions. COde, section
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Memorandum of Points and Authorities in Support of Demurrer to Complaint —iii—
I.
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INTRODUCTION / THE PRIOR DEMURRER
Defendant Harold Grooms, M.D.' (“DL Grooms”) is a physician, and ufitil July 2016 was
a shareholder and employee of plaintiff Omni Women’s Health Med‘ical Group (“Omhi '_
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Women’s Health”).
\OOONOMAUJN
By its fourth cause 0f action for ufijust enrichlfient, plaintiff Omni Women’s Health seeks
t0 claWback from Dr. Grooms almost $100,000 in salary that it paid t0 him pursuant t0 a written
employment agreement during the period of 2012 t0 2015. The demand for repayment has not a
thing to d0 With anything that Dr. Grooms did nor did not do. Rather, according to plaintiff
10 Omni Women’s Health, Medi-Cal has recently made retroactive adjustments t0 certain Of its
11 historical payments Which, in turn, had been paid out to ité physician shareholders, including; Dr.
12 Grooms, as salary.
13 On February 11, 2020, the Court sustained Dr. Grooms’ demurrer t0»the cause 0f action
for.
14 for unj ust enrichment (and the third cause of action the imposition of a constructive trust).
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15 The Court held lthat the cdmplaint- alléged a valid express written employment agregment
16 covering the subj ect matter 0f the disputed issue, shareholder compensation, and thaf plaintiff
17 Omfii Women’s Health did not either deny the existence 0r enforceability 0f that agreement or
18 allege any underlying wrongful conduct or a mutual mistake Which Dr. Grooms came into
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s
19 possession of the salary.
20 Plaintiff Omni Women’s Health has filed a first amended complaint (the “Amended
21 Complain ”). Again, itdoes not deny the existence or enforceability of the Written employment
22 agreement, but now it attempts to allege foundational fraud and mutual mistake. The conclusory
23 allegation of fraud on information and belief does novt come even close to meeting the required
24 specificity. As t6 the allegation 0f mutual mistake, italleges a contingent possibility and not a
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25 fact existing or even contemplated at the time, and it isinsufficient.
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Memorandum 0f Points and Authorities in Support of Demurrer to FirstAmend Complaint -
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r—t II.
N FACTUAL ALLEGATIONS CONTAINED IN THE AMENDED COMPLAINT
U) A. The Parties. Plaintiff Omni Won‘len’sv Health is a professional medical
4k corporation (Amended Complaint, 11 5), and sinceits' formation in 1996 has provided medical
(J!services in the areas 6f gynecology, obstetrics and other aspects of women’s hearth (Amended
O\ Complaint, 1] 10).
fl At all relevant times, plaintiff'Omni Women’s Health’s shareholder physicians were Dr.
Grooms, along with Drs. Wade Dickinson, Camilla Marquez, Ron Lichtenstein, and Fenglaly'
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Lee. (Amended Complaint, 11 13.)
O
r—A Dr. Groomé is a medical doctor licensed to practice medicine in the State 0f California
H with a specialty in obstetrics and gynecology, and was a shareholder,
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officer and director 0f
Ix.)
t—A plaintiff Omni Women’s Health._‘ (Amended Complaintfl 6.) At all relevant times Dr. Grooms
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provided professional medical services at plaintiff Omni Women’s Health pursuant t0 an
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t—I employment agreement effective October 17, 2000, a copy of which is Exhibit “1” to the
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Amended Complaint and it isreferred to hereinas the “Employment Agreement”. From 2001
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H0 through. his resignation 0n July 29, 2016, Dr. Grooms served as the President of plaintiff Omni
Womeh’s Health. (Amended Complaint, fl 7.) _
B. Dr. Grooms’ Combehsation bV plaintiff Omni Women’s Health. Relevant to the
issue of compensation is the fact that plaintiff Omni Women’s Health éperated ih a manner in
which each, 0f its shareholder physicians practiced in offices located in different géographic
areas, which offices were physically separate and apart from the offices Where plaintiff Omhi
Women’s Health performed
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its administrative functions and provided anCillary Services (e.g.,
laboratory, ultrasound, urogynecology, etc.).
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(Amended Complaint, fl 18.) Each shareholdef
as.
physician owned his or her own practice and equipment and operated their practice a
‘separéte
I
cost centeni (Amended Complaint, 1119.)
With that in mind, Dr. Grooms’ compensation consisted of base compensation as
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determined in accordance with the Employee Compensation Agreement Which isExhibit “A” to
the Employment Agreement (the “Compensation Formula”). As set forth in the COmpensation
Memorandum of Points and Authorities in Support of Demurrer to First Amend Complaint - 2 -
Formula; the base compensation cohsisted 0f the gross revenue generated by his practice (i.e.,his _
“cost center”), less the direct costs of operating his practice, less his pro rata share of plaintiff
Omni_Women’s Health’s administrative expenses not attributable to a particular physician
shareholder’s practice. In_addition, Dr. Grooms was entitled t0 bonuses “in such amount as may
be determined from timeto time by the Board 0f Directors” from other revenues that were not
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specificvto‘ Dr. Grooms (i.e.,ancillary services).
The Compensation Formula sets forth'the'lentire universe 6f how monies were paid by
plaintiff Omni Women’s Health to Dr. Grooms, and from the facé of the Employment
Agreement it is allW2 income consisting of base Compensation and bonuses, and is hereinafter
H O referred f0 as “Salary”; The_re is not a single allegation in the Complaifit that monies were ever
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H paid to Dr. Groom‘s other than Salary as prescribed by the Compensation Fonnula.
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p—A
C. Adiustments t0 Interim Payments ahd Laboratory Fees. There are two Medi-Cal
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DJ revenue streams from which plaintiff Omni Women’s Héalth paid out salary t0 its'shareholders,
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p—A
includihg Dr. Grooms, and which years later were the subj ect of adjustments by Medi-Cal.
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r—A These are interim lump sum payments made by Medi-Cal in 2013 and .2014 (the “Interim
H O\ Payments”), and laboratory fees. Each of these are explained below.
)—I'
fl 1. Interim payments (ACA Block payments) and adiustments thereto.
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i—I Although Only generally pleaded in the A7mended Complaint, it is understood to be undisputed
w
h—l that lthe Affordable Care Act of 2010 reqfiired Medi-Cal t0 increase its reimbursement rate
NO effective January 1,2013 for certain services, and pending the upgrade‘of its payment system
N ’—‘and in order to eXpedite payments to providers, Medi-Cal made advance lump sum payments
N [\Jwithout ciaim detail t0 providers against historical and future claims which was an attempt at
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[\J somerough estimate 0f additional monies‘that would be owed. 'These payments, referred t0
N -h herein as Interim Payments, were made by Medi—Cal with the intent that at some point in the
N_ U‘I
future there would be a reconciliation, With providers either receiving additional monies 0r
N O\ refunding Overpayments. The forgoing is_set forth in the Medi-Cal document titled The
Nfl Aflordable Care Act Payment Adjustments and Forthcoming EPC. (Request fOr Judicial Notice.)
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Memorandum of Points and Authorities in Support of Demurrer to First Amend Complaint _
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With this historical backgroufid in Vmind, plaintiff Omni Women’s Health alleges that
under the Affordable Care Act, Medi-Cal made interim block payments to p'roviders in 20,13 arid
2014, and that such payments were distributed t0 the physician shareholders 0n 0r abofit
December‘31, 2014 (Amended Complaint, 11 55), With Dr. Grooms receiving $1 11,426.65
(Amended ComplaintfiI 56). Although not specifically alleged, sfich “distribution” would
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presumably have been a bonus ‘under the Compensation Formula as such moniés were not cost
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center specific.
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‘Inearly-201 8, Medi-Cal finally made adjustments to the Interim Payments, resulting in a
recoupment 0f monies by Medi-Cal from plaintiff Omni Women’s Health, with Medi-Cal
withholding $282,497.24 in pay’n-lents otherwise due to plaintiff. (Amended'Complaint, 57.)
11
After the adjustment,_ Dr. Grooms isconsidered. by plaintiff Omni Women’s Health to have been
overpaid Salary by the amouht Of $67,174.67, and plaintiff Omni Women’s Health wants the
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mdney b'ackf (Amehded Complaint, 1]58.)
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2. -
Laboratory fees and adjustments thereto. Assembly Bill 1494 (Chapter.
28, Statutes of 2012) reqfiiréd Medi-Cal (to be rhore accurate, the Department of Health Care
Services) to‘develop a new rate setting methodology for clinical laboratdry and laboratory prices,
and implemented a ten percent rate reduction effective July 1, 2012 through June 30, 201 5,
pending such implementation. The new rate was t0 be tied to thé aVerage of the lowest prices
new rate
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that other third-party payors were paying for similar Servicés, and as such, the could in
ooxloxmAwNHoxoooquA—mer—‘o
theory have been higher or lower than the rate then in effect. Welfare and Ifistitutions Code
14.1
sections 141 15.5, 14176 and 77, arid California» Code 0f Regulations section 51458;1(a)(1)
authorizeé Medi-Cal to recover overpayments t6 providers. It isMedi-Cal’s [adjustment to
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laboratory fees and recovery from plaintiff Omni Women’s Health fees that is at issué here.
I
.Revenues generated by plaihtiff Omni Wbmen’s Health’s laboratory services were
divided'equally between the Shareholder Physicians. (Amended Complaint, 1158.) It is
presumed that these monies would have been paid out as bonuses under the CompensatiOn
Formula (i.e.,Salary) since the revenues arose from the provision of ancillary services.
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Memorandum of Points and Authorities in Support of Demurrer to First Amend Complaint - 4 —
4—.
v
In February 0f 2019, plaintiff Omni Women’s. Health was informed that Medi-Cal was
requiring refunds of certain laboratory fees paid between January 2012 and July 2015 (the
“Laboratory ‘Fee Adj fistments”), and as a result, plaintiff Omni Women’s Health was required t0
refund to Medi-Cal the amount 0f $1 26,059.29. (Amended Complaint, 1]60.) Thesé monies had
previously been paid out t0 the Shareholder Physicians (Amended Complaint, ’1]
6'0),with Dr.
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Grooms having received $25,21 1.86 (Amended Complaint, 1]61).
D. Alleged Wrongful Acts bV Dr. Grooms. In paragraphs 28, 32, 33, 37, 38, 40 and
41 and 43 of the Amended Complaint, plaintiff Omni Women’s Health alleges‘a series of
supposedly wrongful acts land, omissions 0f Dr. Gfoorhs? presumably as the factual basis for-the
causes 0f action for breach Of fiduciary duties, breach of contract, and fraud (1“, 2nd & 5m,
respectively). The allegations are that Dr. Grooms (1) kept secret that certain 0f the Shareholder
Physicians were operating their cost centers at a loss (Amended Complaint, 1H]28 & 40). and had
growing shareholders receivables accounts (i.e.,monies owed-t'o plaintiff) (Amended Cpmpl‘aint,
1H 28, 37, 38 & 40); (2) participated in keeping Dr. Lee from serving on a‘committee'(Afnended
Complaint, 1132); (3) met With Drs. Dickinson and Marquez and conspired With them to take key
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employees 0f plaintiff With them for financial gain of Drs. Dickinson and Marquez (Amended
Complaint, 1] 33); and (4) caused plaintiff Omni Women’s Health t0 draw on a line 0f credit
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Without informing the Board 0f Directors (Amended Complaint, 1H] .41& 43).
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What is missing
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is even a hint that Dr. Grooms benefited in any ‘way from his supposed
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Wrongdoing. And so, while the causes 0f action for breach 0f fiduciary duties, breach 0f contract
and fraud allege damage suffered by filaintiff Omni Women’s Health asa result 0f Dr. Grooms"
acts, no matter how one might twist 'or contort the allegations, one cannot even infer that Dr.
V
Grooms received a benefit that could support‘a claim for_ufijust enrichinent and/or the imposition
Qf a constructive trust.
With respect t0 the cause 0f a>ctivon for unj ust enrichment, it isrestricted solely and only
t0 the distribution to Dr. Grooms 0f a share 0f the Interim Payments and the laboratory fees that
were $qu ect’to the Laboratory Fee Adjustment. The original complaint was de§0id 0f any
allegations that even imply Wrongful conduct by Dr.‘ Grooms in his receiving of these
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Memorandum of Points and Authorities in Support 0f Demurrer £0 FirstAfnend Complaint 5
)—ndistributions. As'eXplained herein, by its amended pleading, plaintiff Omni Women’s Health
N alleges mutual mistakeand a broad allegation of fraud, but this Idoes not cure the defept.
I I
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U.)
III.
>
-b STANDARD OF DECISION
U} “A demurrer admits all facts properly pleaded, but not contentions, deductions, 0r
ON conclusions of fact or law.” (Ruscigno v.American National Can Company, Inc. (2000) 84
IQ Cal.App.4th 112, 115) Although great liberality is the norm in gauging the Sufficiency of a
00 Complaint against the challenge of a demurrer, “a party may not aVoid demurrer by
C suppressing facts Which prove the pleaded facts false.” (Rodas v. Spiegel (2001) 87 Cal.AppAth
‘
p—n
5 1 3,517.) T0 be properly raised by demurrer; the ground for objection to a complaint must
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appear on itsface or from matters 0f which the court may 0r must take judicial notice. (Code
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CiV. Proc. § 430.30(a).)
mu'st‘
r—l To be adequate, a pleading apprise the defendant of the factUal basis of the
r—l plaintiff’s claim. (McKeZl v. Washingtbn Mutual, Inc. (2006) 142 Ca1.App.4th 1457, 1470) A
they
»—‘ complaint must allege with clearness and firecision essential facts upon Which the plaintiff s
r—t claim is based, s0 that nothing is left t0 surmise. (Ankeny v. Lockheed Missiles and Space Co.
r—‘
(1979) 88 Ca1.App.3>d 53 1-, 537.)
t—‘ Cohtracts that-form the foundation for the causés 0f action and'are attached as exhibits to
'—‘ the complaint may be considered by the court 0h demurrer. (SCEcorp v.Superior Court (1992),
N 3 Cal.App.4th 673, 677.) Facts appearing in writings attached as exhibits to a complaint are
N accepted as 'true and will be given precedefice over contrary ailegafions in the Complaint. (Dodd
[\J v. Citizens Bank ofCosta Mesa (1990) 222 Cal.App.3d 1624, 1626-1627.) When a plaintiff
N attaches a copy of its contract to the complaint and tries t0 allege its terms according t0 their
N legal effect,‘the terms 0f the attached writing control in the event 0f inconsistencies. (De Castro
.N
& .Co. v. Liberty SS. 0fPanama,_S.A. (1960) 186 Ca1.App.2d 628, 631)
[\J 1n ruling 0n a general defhurrer for failure t0 state a cause> 0f action, doubts in the
N complaint may be resolved against the plaintiff and facts not alleged in the cbmplaint are
N presumed not t0 exist; (Kramer v. Intuit, Inc. (2004) 121‘ Ca1.App.4th 574-, 578.)
Memorandum 0f Points and Amend
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Authorities in Support of Demurrer to First Complaint
If the demfirrer is sustained, leave to amend should be granted only where a plaintiff can
prove the reasonable possibility that the defect can be curedby amendment. (Blank v. Kirwan
(1985) 39 Ca1.3d 31 1,3 18.) In fact, whereihe only issues presented are legal ones, and-the court
decides against the plaintiff as a matter of law, leave t0 amend should be denied. (Schonfeldt v.
Siate ofCalifornia (1998)
\OOONONUl-IRUJNp—A
61 Ca1.App.4th 1462, 1465.)
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IV.
V
THE AMENDED COMPLAINT DOES NOT CURE THE FATAL DEFECT IDENTIFIED
V V
BY THE ORDER SUSTATING DEMURRER
A. The defect in the original complaint identified by the Court. As with the original
complaint, by its fourth cause of action for unj ust enrichment plaintiff Omni Women’s Health’s
p—A‘t—t
seeks t0 clawback Salary paid to Dr. Grooms during the period 0f 2012 to 2015, which monies
t—t are attributable to monies received by plaintiff Omni Women’s Health from Medi-Cal for
r—I services rendered during those years. (Amended Complaint, fl 55- 62. )
r—I The Order Sustaining Demurrer explains that this cause of action as pleaded 1n the
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r—a original complaint failed t0 state a'Valid claim because, among other grounds, the complaint
r—A alleged the existence of a valid and enforceable express contract between plaintiff Omni
r—I Women’s Health and Dr. Grooms that did not permit such clawbacks by Omni WOmen’s Health
absent factual allegations showing a mutual miStake by the parties 0r wrongful conduct by Dr.
p—I‘r—A
Grooms relating t0 his acquisition 0f these payments. (Order Sustaining Demurrer, p 7 (last I
[\) paragraph) to p. 10 (penultimate paragraph), citing Klein v.Chevron, USA, Inc. (2012) 202
[\J Ca1.App.4th 1342, 1389-1390 fcsr'the rule, and Supervalu, Inc; v. Wexford Underwriting
‘
[\J Managers Inc. (2009) 175 Cal. App. 4th 64, 78- 79 for the exception t0 the rule.)
N B. Plaintiff Omni Women’ s Health’s amendments regarding the defect. In an
[\J attempt by plaintiff Omni Women’s Health t0 bring itself within the Supervalu exception and
[\J avoid the Klein rule and application 0f the express-agreement between plaintiff Omni Women’s
N Health and Dr. Gfooms concerning the compensation paid to Dr. Grooms, 'the Amended
N Complaint cofitains the following new allegationsz'
[\) With respect to the employment agreements between OMNI and the Shareholder
Physicians, it was not the intent or agreement 0f OMNI (through itsboard of
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Memorandum 0f Points and Authorities in Support of Demurrer to First Amend Complaint -7 -
directors) or any 0f the Shareholder Physicians (including GROOMS) that the
Shareholder Physicians’ compensation include funds that were derived from
OMNI’s receipt 0f proceeds from any governmental agency/entity that said
governmental agency/entity required OMNI t0 refund or reimburse. Had OMNI‘ V
and GROOMS known that OMNI was paying money t0 GROOMS that was.
sourced from payments that OMNI vreceived'from governmental agencies/entities
that those governmental agencies/entities would require OMNI t0 refund'or
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and
wooflONU‘I-bUJNy—A
reimburse those funds, OMNI would not have authorized those funds t0 be paid to
GROOMS and GROOMS would not have accepted receipt of those funds.
(Amended Complaint, fl 2.6 (5213-23)) _
alternatively a mutual mistake 0f fact between OMNI and GROOMS,
(Amended Complaint, 1]
78 (17:8-10).)
By way'of example and not limitation, OMNI is informed and believes, and ‘
thereon alleges, that on 0r about December 3 1 ,2014, GROOMS received interim. '
block overpayments in the amount of $67,174.67, which-p'ayments he would not
NHO
have received but forhis participation in a fraudulent scheme t0 conceal his
negative cost center, 0r alternatively, as a result 0f a mutual mistake of fact
between GROOMS and OMNI. (Amended Complaint», 11
79 (17:17-22))
AU.) I
altérnat‘ively, as a result 0f a mutual mistake of fact, ...) (Amended
Complaint, 11
83 (18:20).)
These new allegations in-the Amended COmplaint d0 lnot cfire the defect identified by the
I
Order Sustaining Demurrer.
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C.
r—‘OKOOOQONU‘I
The Amended Complaint does not plead a legally sufficient misfake because the
alleged mistake relates t0 a contingent possibility, not t0 a fact existing or even contemplated at
the time 0f contracting. The alleged mistake 'is that the parties would not have contracted for
plaintiff Omni Women’s Health t0 pay the subj ect paYments to Dr. Grooms if they had known
that Medi-Cal would seek reimbursement of part Of the payments back from plaintiff. That type
of mistake is not legaily Sufficient t0 permit plaintiff Omni Women’s Health t0 clawback Saiary
AWN
paid t0 Dr. Grooms‘years earlier.
To permit avoidance 0r reversal of performance under a contract on the ground of
O\U‘I
mistake, the mistake must relate to a fact that existed at the time of contracting — not t0 a future
contingency that might 0r might not occur years after the parties made their contract. (Masher v._
N
N 00
Mayacamas Corp (1989) 215 Cal.Appl3d 1,4-5.)
Memorandum 0f Points and Authorities in Support 6f Demurrer to First Amend Complaint -
8 —
H In Masher, the plaintiff sold to‘his brother’s corporation (the defendant) the plaintiff’s
share of a Lake Tahoe property jointly 0Wned by the brothers. (Masher v. Mayacamas Corp,
supra, 215 Cal.App.3d at p. 3.) This sale, Which required defendant t0 make installment
payments 0f principalvand interest over a period of five years, occurred in 1ate-1982 and was
memorialized by a contract drafted by plaintiff s brother. (Ibid) At the time of the sale, the
oooqoxufhwm
property was valued at abéut.$500,000. (Ibid.) During 1985, the vélué of the property decéased
Ichange in federal tax law regarding secondary residences, and
t0 about $11 5,000 because of a
defendant sold the property and stoppedmaking any payments of principal or intefest t0 plaintiff.
(11nd,)
_
O .The plaintiff suéd in early 1986, and mOVed for summafy judgment Which was granted by
)—Ithe trial court. (Masher v Mayacamas Corp; supra? 21 5 Ca1.App.3d at pp.v 3-4.) The defendant.
[\J asserted that the sale cOntract should be reformed because the parties made a mistake about the
UJ value of the property and intended t0 share the risk 0f logs from any post-sale diminution in the
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A value of the property. (Id, at p. 4.)
U‘I
The Court 0f Appeal affirmed the trial court s grant 0f summary judgment. The court
ON first held that the mistake identified by the defendant related to a future contingent event and not .
fl t0 an existing fact and so proVided n0 legal basis for defendant t0 avoid performance.
NNNNNNNNNHHp—Ar—At—ir—tr—tt—Ht—a
(Masher
00 v. Mayacamas Corp, supra, 215 Cal. App. 3d at pp. 4-5. ) The court then held that there was n0
\O evidence suggesting that the parties contracted upon a basic assumption that the tax laws would
O never change or that they had agreed t0 share the loss if the laws did change and result 1n a
>
|—‘diminution 0f the value of the property. (Id., at pp. 5- 6. )The court observed that because this
N asserted basic assump‘upn and risk-sharing agreement were allegedly important to the defendant,
lthedefendant bore the risk 0f loss because it drafted the sale contract and made an “error in
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'
judgment” By not. including in it terms regarding these allegedly major components of the deal.
U‘I
(Id, at p. 6.) The same result must obtain‘ in {his case._
O\
_
The Employfilént Agreement between plaintiff Omni Women’s Health and Dr. Grooms
N was formed in OCtbber 20100.»
(Amended Complaint, 1]6; Ex. 1 to Amended Complaint.) This
00 was over four years before the salary paid to Dr. Grooms in December 2014 which was thé
Memorandum of Points and Authorities in Support of Demurrer t0 First Amend Complaint -
9 -
p-A
subject 0f a Medi-Cal adjustment in 201 8, and two years before the beginning 0f payments
V
attributable t0 laboratory services in 2012 which were the subj ect 0f the Medi— Cal adjustment 1n
2019. As such, the “mistake” alleged by plaintiff Omni Women’ s Health 1n the Amended
.Complaint indisputably relates t'ofacts that simply did not exist atthe time the Employment
Agreement was formed, and does not permit plaintiff t0 avoid 0r revérse its performance of '
I
\oooqox-UIAUJD
making the subject paymen
Preview
E-FILED Charles L. Doerksen, #135423 5/4/2020 8:52 PM DOERKSEN TAYLOR Superior Court of California 744 “P” Street, Suite 029 County of Fresno Fresno, California 93721 By: Sergio Lopez, Deputy Tel: 559 233 3434 Attorneys for defendant Harold Grooms, M.D. \OOONQUI-PUJNH SUPERIOR COURT OF CALIFORNIA, COUNTY OF FRESNO CENTRAL DIVISION - CIVIL UNLIMITED OMNI WOMEN’S HEALTH MEDICAL Case No. 19CECG02730 ' GROUP, 1Nc., MEMORANDUM 0F POINTS AND Plaintiff, AUTHORITIES IN SUPPORT OF V r DEMURRER TO FIRST AMENDED V. COMPLAINT HAROLD GROOMS, M.D., Date: June 9, 2020 v Time: 3:30 p.111. . Defendant. Dept: 403 Complaint Filed: July 29, 201 9 Trial Date: Not Set NMMNNNMN‘NHHH_HHHHHH‘H ooycxmpwmwoxooouoxznhwmwo Memorandum of Points and Authorities in Support 0f Demurrer t0 First Amended Complaint H TABLE OF CONTENTS INTRODUCTION / THE PRIOR DEMURRER II. FACTUAL ALLEGATIQNS CONTAINED IN THE AMENDED COMPLAINT l I A4. The Parties B. Dr. Gfooms’ Compensation by plaintiff Omni Women’s Health ' \ooo'qoxm’ngw - C. Adjustments t0 Interim Payments and Laboratory Fees. V ‘ " 1. Interim Payments (ACA block payments) and adjustments thereto V V ‘ 2. Laboratory fees and adj ustments thereto ' D. Alleged Wrongful Acts by Dr. Grooms O III. STANDARD 0F DECISION H IV. THE AMENDED COMPLAINT DOES NOT CURE THE FATAL DEFENSE N IDENTIFIED BY'THE ORDER SUSTAINING DEMURRER U.) , A.‘ The defect .in the original complaint Iidécntified by the Court A B. I‘PlaintiffOmni Women’s Health’s amendments regarding the defect ‘ U1 C. The Amended Complaint does hot plead a legally sufficient mistake ON bec'ause the alleged mistake relates to a contingent possibiiity, not to - fl a fact existing or‘ even contemplated at the time. of cohtracting 00 D. The Amended Complaint does ndt allege any fraudulent conduct by \O Dr. Grooms relating t0 his acquisition of the subj ect payment 10 O CONCLUSION 14 ’—‘ N .UJ -h U} ON N 00 Memorandum of Points and Authorities in Support of Demurrer to Complaint p—t TABLE 0F AUTHORITIES . 9% ~ Ankeny v.Lockheed Missiles and Space C0. (1979) 88 Cal.App.3d 531 > I Bahk ofNew Yofk Mellon v. Citibank, N.A. . (2017) 8 Cal. App. 5th 935 13 Blank v. Kirwan (1985) 39 Cal.3d 311, 318 De Castro & C0. ”v. Liberty S.S.'ofPanama, SA. O (1960) 186 Cal.App.2d 628 ’—‘ Dodd v. Citizens Bank ofCOSta Mesa . [\J (1990) 222 Cal.App.3d 1624 > U.) Ferrick v. Santa Clara University -b '(2014) 231 Cal.AppAth 1337 vll' 'UI Gentry v. eBay, Inc. _ 99 Ca1.App.4th 816 ON (2002) 12 fl Games v. Countrywide Home Loans, Inc. (2011) 1 OO 92 Ca1.App.4th;1 149 I O Klein v Chevron, U. S. A. Inc. A O (2012) 202 Cal. App. 4th 1342 7,8 H Kramer v Intuit, Inc. (2004) N 121 Cal. App. 4th 574 UJ McKell v. Washington Mutual Inc. (2006) -l> 142 Cal. App. 4th 1457 U1 Masher v Mayacamas Corp (1989) O\ 215 Ca1.App.3d 1 ‘ 8,9 N Murphy v. BDO Seidman LLP (2003) ' ' ‘00 113 Ca1.App. 4th 687 11 ' MemOrandum 0f Points and Authorities in Support of Demurrer-to Complaint —ii— H Rodas v. Spiegel (2001) 87 Cal.App.4th.513 Ruscigno v. American National Can Campany, Inc. ’ (2000) 84 Ca1.App.4t_h 112 SCEcorp \ooouoxmgrw.t\> v.Superior Court (1992) - 3 Cal.AppAth 673 Schonfeldt 'v. State ofCalz'fornz'a (1998) 61 Ca1.App.4th- 1462 Service by Medallion, Inc. v. Clorox C0. O (1996) 44 Cal.App.4th p—n 1807 11 Wexford Underwriting Managers, p—n ’—‘ Supervalu, Inc..v. Inc. 64' N p—A (2009) 175 Cal.App.4th 7, 10 U) p—A 'Woodring v. Basso (1961) 195 Cal‘.App.2d 459 11 g r—A Kl] r—A Statutes‘and Regulations C\ >—-t California Code of Civil Procedure, section 430.30.(a).) \) p—A Califorfiia Corporations Code, section 3 12 p—A 0° p—A Ceilifornia Code of Regulatibns, section 5 1458.1(a)(1) -h \O California Welfare and Institutions Code, section 141 15.5 g O [\J California Welfare and Institutions Code, section 14176 [\) '—‘ h_-P 14177 ‘ California Welfare and Institutions. COde, section NN U3 [\j [\) -P [\J O\'U‘I [\D'N fl 00 [\D Memorandum of Points and Authorities in Support of Demurrer to Complaint —iii— I. > INTRODUCTION / THE PRIOR DEMURRER Defendant Harold Grooms, M.D.' (“DL Grooms”) is a physician, and ufitil July 2016 was a shareholder and employee of plaintiff Omni Women’s Health Med‘ical Group (“Omhi '_ ' Women’s Health”). \OOONOMAUJN By its fourth cause 0f action for ufijust enrichlfient, plaintiff Omni Women’s Health seeks t0 claWback from Dr. Grooms almost $100,000 in salary that it paid t0 him pursuant t0 a written employment agreement during the period of 2012 t0 2015. The demand for repayment has not a thing to d0 With anything that Dr. Grooms did nor did not do. Rather, according to plaintiff 10 Omni Women’s Health, Medi-Cal has recently made retroactive adjustments t0 certain Of its 11 historical payments Which, in turn, had been paid out to ité physician shareholders, including; Dr. 12 Grooms, as salary. 13 On February 11, 2020, the Court sustained Dr. Grooms’ demurrer t0»the cause 0f action for. 14 for unj ust enrichment (and the third cause of action the imposition of a constructive trust). - 15 The Court held lthat the cdmplaint- alléged a valid express written employment agregment 16 covering the subj ect matter 0f the disputed issue, shareholder compensation, and thaf plaintiff 17 Omfii Women’s Health did not either deny the existence 0r enforceability 0f that agreement or 18 allege any underlying wrongful conduct or a mutual mistake Which Dr. Grooms came into I s 19 possession of the salary. 20 Plaintiff Omni Women’s Health has filed a first amended complaint (the “Amended 21 Complain ”). Again, itdoes not deny the existence or enforceability of the Written employment 22 agreement, but now it attempts to allege foundational fraud and mutual mistake. The conclusory 23 allegation of fraud on information and belief does novt come even close to meeting the required 24 specificity. As t6 the allegation 0f mutual mistake, italleges a contingent possibility and not a I 25 fact existing or even contemplated at the time, and it isinsufficient. I ‘ 2'6 /// 27 /// 28 /// Memorandum 0f Points and Authorities in Support of Demurrer to FirstAmend Complaint - 1 - r—t II. N FACTUAL ALLEGATIONS CONTAINED IN THE AMENDED COMPLAINT U) A. The Parties. Plaintiff Omni Won‘len’sv Health is a professional medical 4k corporation (Amended Complaint, 11 5), and sinceits' formation in 1996 has provided medical (J!services in the areas 6f gynecology, obstetrics and other aspects of women’s hearth (Amended O\ Complaint, 1] 10). fl At all relevant times, plaintiff'Omni Women’s Health’s shareholder physicians were Dr. Grooms, along with Drs. Wade Dickinson, Camilla Marquez, Ron Lichtenstein, and Fenglaly' \O'OO Lee. (Amended Complaint, 11 13.) O r—A Dr. Groomé is a medical doctor licensed to practice medicine in the State 0f California H with a specialty in obstetrics and gynecology, and was a shareholder, 'r—l officer and director 0f Ix.) t—A plaintiff Omni Women’s Health._‘ (Amended Complaintfl 6.) At all relevant times Dr. Grooms H U.) provided professional medical services at plaintiff Omni Women’s Health pursuant t0 an A t—I employment agreement effective October 17, 2000, a copy of which is Exhibit “1” to the L11 ,r—A Amended Complaint and it isreferred to hereinas the “Employment Agreement”. From 2001 V H0 through. his resignation 0n July 29, 2016, Dr. Grooms served as the President of plaintiff Omni Womeh’s Health. (Amended Complaint, fl 7.) _ B. Dr. Grooms’ Combehsation bV plaintiff Omni Women’s Health. Relevant to the issue of compensation is the fact that plaintiff Omni Women’s Health éperated ih a manner in which each, 0f its shareholder physicians practiced in offices located in different géographic areas, which offices were physically separate and apart from the offices Where plaintiff Omhi Women’s Health performed NNNNN‘NNNDHHr—t its administrative functions and provided anCillary Services (e.g., laboratory, ultrasound, urogynecology, etc.). ooqoxmgmwwooooq (Amended Complaint, fl 18.) Each shareholdef as. physician owned his or her own practice and equipment and operated their practice a ‘separéte I cost centeni (Amended Complaint, 1119.) With that in mind, Dr. Grooms’ compensation consisted of base compensation as > determined in accordance with the Employee Compensation Agreement Which isExhibit “A” to the Employment Agreement (the “Compensation Formula”). As set forth in the COmpensation Memorandum of Points and Authorities in Support of Demurrer to First Amend Complaint - 2 - Formula; the base compensation cohsisted 0f the gross revenue generated by his practice (i.e.,his _ “cost center”), less the direct costs of operating his practice, less his pro rata share of plaintiff Omni_Women’s Health’s administrative expenses not attributable to a particular physician shareholder’s practice. In_addition, Dr. Grooms was entitled t0 bonuses “in such amount as may be determined from timeto time by the Board 0f Directors” from other revenues that were not \OOOflQUl-DUJNH specificvto‘ Dr. Grooms (i.e.,ancillary services). The Compensation Formula sets forth'the'lentire universe 6f how monies were paid by plaintiff Omni Women’s Health to Dr. Grooms, and from the facé of the Employment Agreement it is allW2 income consisting of base Compensation and bonuses, and is hereinafter H O referred f0 as “Salary”; The_re is not a single allegation in the Complaifit that monies were ever I ._n H paid to Dr. Groom‘s other than Salary as prescribed by the Compensation Fonnula. N p—A C. Adiustments t0 Interim Payments ahd Laboratory Fees. There are two Medi-Cal p—A DJ revenue streams from which plaintiff Omni Women’s Héalth paid out salary t0 its'shareholders, h p—A includihg Dr. Grooms, and which years later were the subj ect of adjustments by Medi-Cal. kl] r—A These are interim lump sum payments made by Medi-Cal in 2013 and .2014 (the “Interim H O\ Payments”), and laboratory fees. Each of these are explained below. )—I' fl 1. Interim payments (ACA Block payments) and adiustments thereto. 00 i—I Although Only generally pleaded in the A7mended Complaint, it is understood to be undisputed w h—l that lthe Affordable Care Act of 2010 reqfiired Medi-Cal t0 increase its reimbursement rate NO effective January 1,2013 for certain services, and pending the upgrade‘of its payment system N ’—‘and in order to eXpedite payments to providers, Medi-Cal made advance lump sum payments N [\Jwithout ciaim detail t0 providers against historical and future claims which was an attempt at DJ [\J somerough estimate 0f additional monies‘that would be owed. 'These payments, referred t0 N -h herein as Interim Payments, were made by Medi—Cal with the intent that at some point in the N_ U‘I future there would be a reconciliation, With providers either receiving additional monies 0r N O\ refunding Overpayments. The forgoing is_set forth in the Medi-Cal document titled The Nfl Aflordable Care Act Payment Adjustments and Forthcoming EPC. (Request fOr Judicial Notice.) : NV 00 /// I Memorandum of Points and Authorities in Support of Demurrer to First Amend Complaint _ - 3 - With this historical backgroufid in Vmind, plaintiff Omni Women’s Health alleges that under the Affordable Care Act, Medi-Cal made interim block payments to p'roviders in 20,13 arid 2014, and that such payments were distributed t0 the physician shareholders 0n 0r abofit December‘31, 2014 (Amended Complaint, 11 55), With Dr. Grooms receiving $1 11,426.65 (Amended ComplaintfiI 56). Although not specifically alleged, sfich “distribution” would \OOOQQUI-PUJNH presumably have been a bonus ‘under the Compensation Formula as such moniés were not cost I r ~ center specific. ‘ I I ‘Inearly-201 8, Medi-Cal finally made adjustments to the Interim Payments, resulting in a recoupment 0f monies by Medi-Cal from plaintiff Omni Women’s Health, with Medi-Cal withholding $282,497.24 in pay’n-lents otherwise due to plaintiff. (Amended'Complaint, 57.) 11 After the adjustment,_ Dr. Grooms isconsidered. by plaintiff Omni Women’s Health to have been overpaid Salary by the amouht Of $67,174.67, and plaintiff Omni Women’s Health wants the .- mdney b'ackf (Amehded Complaint, 1]58.) V 2. - Laboratory fees and adjustments thereto. Assembly Bill 1494 (Chapter. 28, Statutes of 2012) reqfiiréd Medi-Cal (to be rhore accurate, the Department of Health Care Services) to‘develop a new rate setting methodology for clinical laboratdry and laboratory prices, and implemented a ten percent rate reduction effective July 1, 2012 through June 30, 201 5, pending such implementation. The new rate was t0 be tied to thé aVerage of the lowest prices new rate NNNNNNNNNHr—‘HHHH'HHHH that other third-party payors were paying for similar Servicés, and as such, the could in ooxloxmAwNHoxoooquA—mer—‘o theory have been higher or lower than the rate then in effect. Welfare and Ifistitutions Code 14.1 sections 141 15.5, 14176 and 77, arid California» Code 0f Regulations section 51458;1(a)(1) authorizeé Medi-Cal to recover overpayments t6 providers. It isMedi-Cal’s [adjustment to I laboratory fees and recovery from plaintiff Omni Women’s Health fees that is at issué here. I .Revenues generated by plaihtiff Omni Wbmen’s Health’s laboratory services were divided'equally between the Shareholder Physicians. (Amended Complaint, 1158.) It is presumed that these monies would have been paid out as bonuses under the CompensatiOn Formula (i.e.,Salary) since the revenues arose from the provision of ancillary services. /// Memorandum of Points and Authorities in Support of Demurrer to First Amend Complaint - 4 — 4—. v In February 0f 2019, plaintiff Omni Women’s. Health was informed that Medi-Cal was requiring refunds of certain laboratory fees paid between January 2012 and July 2015 (the “Laboratory ‘Fee Adj fistments”), and as a result, plaintiff Omni Women’s Health was required t0 refund to Medi-Cal the amount 0f $1 26,059.29. (Amended Complaint, 1]60.) Thesé monies had previously been paid out t0 the Shareholder Physicians (Amended Complaint, ’1] 6'0),with Dr. \o'oo\1~oxvm.l>wt\> Grooms having received $25,21 1.86 (Amended Complaint, 1]61). D. Alleged Wrongful Acts bV Dr. Grooms. In paragraphs 28, 32, 33, 37, 38, 40 and 41 and 43 of the Amended Complaint, plaintiff Omni Women’s Health alleges‘a series of supposedly wrongful acts land, omissions 0f Dr. Gfoorhs? presumably as the factual basis for-the causes 0f action for breach Of fiduciary duties, breach of contract, and fraud (1“, 2nd & 5m, respectively). The allegations are that Dr. Grooms (1) kept secret that certain 0f the Shareholder Physicians were operating their cost centers at a loss (Amended Complaint, 1H]28 & 40). and had growing shareholders receivables accounts (i.e.,monies owed-t'o plaintiff) (Amended Cpmpl‘aint, 1H 28, 37, 38 & 40); (2) participated in keeping Dr. Lee from serving on a‘committee'(Afnended Complaint, 1132); (3) met With Drs. Dickinson and Marquez and conspired With them to take key r employees 0f plaintiff With them for financial gain of Drs. Dickinson and Marquez (Amended Complaint, 1] 33); and (4) caused plaintiff Omni Women’s Health t0 draw on a line 0f credit V ' Without informing the Board 0f Directors (Amended Complaint, 1H] .41& 43). V What is missing NN'NN'NNNNNH.H~Hp—_-'HHHHH is even a hint that Dr. Grooms benefited in any ‘way from his supposed ooqoxm-bw-Nr—toxooouoxmgwwr—‘o Wrongdoing. And so, while the causes 0f action for breach 0f fiduciary duties, breach 0f contract and fraud allege damage suffered by filaintiff Omni Women’s Health asa result 0f Dr. Grooms" acts, no matter how one might twist 'or contort the allegations, one cannot even infer that Dr. V Grooms received a benefit that could support‘a claim for_ufijust enrichinent and/or the imposition Qf a constructive trust. With respect t0 the cause 0f a>ctivon for unj ust enrichment, it isrestricted solely and only t0 the distribution to Dr. Grooms 0f a share 0f the Interim Payments and the laboratory fees that were $qu ect’to the Laboratory Fee Adjustment. The original complaint was de§0id 0f any allegations that even imply Wrongful conduct by Dr.‘ Grooms in his receiving of these - -' Memorandum of Points and Authorities in Support 0f Demurrer £0 FirstAfnend Complaint 5 )—ndistributions. As'eXplained herein, by its amended pleading, plaintiff Omni Women’s Health N alleges mutual mistakeand a broad allegation of fraud, but this Idoes not cure the defept. I I I U.) III. > -b STANDARD OF DECISION U} “A demurrer admits all facts properly pleaded, but not contentions, deductions, 0r ON conclusions of fact or law.” (Ruscigno v.American National Can Company, Inc. (2000) 84 IQ Cal.App.4th 112, 115) Although great liberality is the norm in gauging the Sufficiency of a 00 Complaint against the challenge of a demurrer, “a party may not aVoid demurrer by C suppressing facts Which prove the pleaded facts false.” (Rodas v. Spiegel (2001) 87 Cal.AppAth ‘ p—n 5 1 3,517.) T0 be properly raised by demurrer; the ground for objection to a complaint must ‘p—n appear on itsface or from matters 0f which the court may 0r must take judicial notice. (Code p—n CiV. Proc. § 430.30(a).) mu'st‘ r—l To be adequate, a pleading apprise the defendant of the factUal basis of the r—l plaintiff’s claim. (McKeZl v. Washingtbn Mutual, Inc. (2006) 142 Ca1.App.4th 1457, 1470) A they »—‘ complaint must allege with clearness and firecision essential facts upon Which the plaintiff s r—t claim is based, s0 that nothing is left t0 surmise. (Ankeny v. Lockheed Missiles and Space Co. r—‘ (1979) 88 Ca1.App.3>d 53 1-, 537.) t—‘ Cohtracts that-form the foundation for the causés 0f action and'are attached as exhibits to '—‘ the complaint may be considered by the court 0h demurrer. (SCEcorp v.Superior Court (1992), N 3 Cal.App.4th 673, 677.) Facts appearing in writings attached as exhibits to a complaint are N accepted as 'true and will be given precedefice over contrary ailegafions in the Complaint. (Dodd [\J v. Citizens Bank ofCosta Mesa (1990) 222 Cal.App.3d 1624, 1626-1627.) When a plaintiff N attaches a copy of its contract to the complaint and tries t0 allege its terms according t0 their N legal effect,‘the terms 0f the attached writing control in the event 0f inconsistencies. (De Castro .N & .Co. v. Liberty SS. 0fPanama,_S.A. (1960) 186 Ca1.App.2d 628, 631) [\J 1n ruling 0n a general defhurrer for failure t0 state a cause> 0f action, doubts in the N complaint may be resolved against the plaintiff and facts not alleged in the cbmplaint are N presumed not t0 exist; (Kramer v. Intuit, Inc. (2004) 121‘ Ca1.App.4th 574-, 578.) Memorandum 0f Points and Amend ' - 6 - Authorities in Support of Demurrer to First Complaint If the demfirrer is sustained, leave to amend should be granted only where a plaintiff can prove the reasonable possibility that the defect can be curedby amendment. (Blank v. Kirwan (1985) 39 Ca1.3d 31 1,3 18.) In fact, whereihe only issues presented are legal ones, and-the court decides against the plaintiff as a matter of law, leave t0 amend should be denied. (Schonfeldt v. Siate ofCalifornia (1998) \OOONONUl-IRUJNp—A 61 Ca1.App.4th 1462, 1465.) ’ IV. V THE AMENDED COMPLAINT DOES NOT CURE THE FATAL DEFECT IDENTIFIED V V BY THE ORDER SUSTATING DEMURRER A. The defect in the original complaint identified by the Court. As with the original complaint, by its fourth cause of action for unj ust enrichment plaintiff Omni Women’s Health’s p—A‘t—t seeks t0 clawback Salary paid to Dr. Grooms during the period 0f 2012 to 2015, which monies t—t are attributable to monies received by plaintiff Omni Women’s Health from Medi-Cal for r—I services rendered during those years. (Amended Complaint, fl 55- 62. ) r—I The Order Sustaining Demurrer explains that this cause of action as pleaded 1n the ’ r—a original complaint failed t0 state a'Valid claim because, among other grounds, the complaint r—A alleged the existence of a valid and enforceable express contract between plaintiff Omni r—I Women’s Health and Dr. Grooms that did not permit such clawbacks by Omni WOmen’s Health absent factual allegations showing a mutual miStake by the parties 0r wrongful conduct by Dr. p—I‘r—A Grooms relating t0 his acquisition 0f these payments. (Order Sustaining Demurrer, p 7 (last I [\) paragraph) to p. 10 (penultimate paragraph), citing Klein v.Chevron, USA, Inc. (2012) 202 [\J Ca1.App.4th 1342, 1389-1390 fcsr'the rule, and Supervalu, Inc; v. Wexford Underwriting ‘ [\J Managers Inc. (2009) 175 Cal. App. 4th 64, 78- 79 for the exception t0 the rule.) N B. Plaintiff Omni Women’ s Health’s amendments regarding the defect. In an [\J attempt by plaintiff Omni Women’s Health t0 bring itself within the Supervalu exception and [\J avoid the Klein rule and application 0f the express-agreement between plaintiff Omni Women’s N Health and Dr. Gfooms concerning the compensation paid to Dr. Grooms, 'the Amended N Complaint cofitains the following new allegationsz' [\) With respect to the employment agreements between OMNI and the Shareholder Physicians, it was not the intent or agreement 0f OMNI (through itsboard of ‘ ' Memorandum 0f Points and Authorities in Support of Demurrer to First Amend Complaint -7 - directors) or any 0f the Shareholder Physicians (including GROOMS) that the Shareholder Physicians’ compensation include funds that were derived from OMNI’s receipt 0f proceeds from any governmental agency/entity that said governmental agency/entity required OMNI t0 refund or reimburse. Had OMNI‘ V and GROOMS known that OMNI was paying money t0 GROOMS that was. sourced from payments that OMNI vreceived'from governmental agencies/entities that those governmental agencies/entities would require OMNI t0 refund'or ' and wooflONU‘I-bUJNy—A reimburse those funds, OMNI would not have authorized those funds t0 be paid to GROOMS and GROOMS would not have accepted receipt of those funds. (Amended Complaint, fl 2.6 (5213-23)) _ alternatively a mutual mistake 0f fact between OMNI and GROOMS, (Amended Complaint, 1] 78 (17:8-10).) By way'of example and not limitation, OMNI is informed and believes, and ‘ thereon alleges, that on 0r about December 3 1 ,2014, GROOMS received interim. ' block overpayments in the amount of $67,174.67, which-p'ayments he would not NHO have received but forhis participation in a fraudulent scheme t0 conceal his negative cost center, 0r alternatively, as a result 0f a mutual mistake of fact between GROOMS and OMNI. (Amended Complaint», 11 79 (17:17-22)) AU.) I altérnat‘ively, as a result 0f a mutual mistake of fact, ...) (Amended Complaint, 11 83 (18:20).) These new allegations in-the Amended COmplaint d0 lnot cfire the defect identified by the I Order Sustaining Demurrer. ' C. r—‘OKOOOQONU‘I The Amended Complaint does not plead a legally sufficient misfake because the alleged mistake relates t0 a contingent possibility, not t0 a fact existing or even contemplated at the time 0f contracting. The alleged mistake 'is that the parties would not have contracted for plaintiff Omni Women’s Health t0 pay the subj ect paYments to Dr. Grooms if they had known that Medi-Cal would seek reimbursement of part Of the payments back from plaintiff. That type of mistake is not legaily Sufficient t0 permit plaintiff Omni Women’s Health t0 clawback Saiary AWN paid t0 Dr. Grooms‘years earlier. To permit avoidance 0r reversal of performance under a contract on the ground of O\U‘I mistake, the mistake must relate to a fact that existed at the time of contracting — not t0 a future contingency that might 0r might not occur years after the parties made their contract. (Masher v._ N N 00 Mayacamas Corp (1989) 215 Cal.Appl3d 1,4-5.) Memorandum 0f Points and Authorities in Support 6f Demurrer to First Amend Complaint - 8 — H In Masher, the plaintiff sold to‘his brother’s corporation (the defendant) the plaintiff’s share of a Lake Tahoe property jointly 0Wned by the brothers. (Masher v. Mayacamas Corp, supra, 215 Cal.App.3d at p. 3.) This sale, Which required defendant t0 make installment payments 0f principalvand interest over a period of five years, occurred in 1ate-1982 and was memorialized by a contract drafted by plaintiff s brother. (Ibid) At the time of the sale, the oooqoxufhwm property was valued at abéut.$500,000. (Ibid.) During 1985, the vélué of the property decéased Ichange in federal tax law regarding secondary residences, and t0 about $11 5,000 because of a defendant sold the property and stoppedmaking any payments of principal or intefest t0 plaintiff. (11nd,) _ O .The plaintiff suéd in early 1986, and mOVed for summafy judgment Which was granted by )—Ithe trial court. (Masher v Mayacamas Corp; supra? 21 5 Ca1.App.3d at pp.v 3-4.) The defendant. [\J asserted that the sale cOntract should be reformed because the parties made a mistake about the UJ value of the property and intended t0 share the risk 0f logs from any post-sale diminution in the ‘ A value of the property. (Id, at p. 4.) U‘I The Court 0f Appeal affirmed the trial court s grant 0f summary judgment. The court ON first held that the mistake identified by the defendant related to a future contingent event and not . fl t0 an existing fact and so proVided n0 legal basis for defendant t0 avoid performance. NNNNNNNNNHHp—Ar—At—ir—tr—tt—Ht—a (Masher 00 v. Mayacamas Corp, supra, 215 Cal. App. 3d at pp. 4-5. ) The court then held that there was n0 \O evidence suggesting that the parties contracted upon a basic assumption that the tax laws would O never change or that they had agreed t0 share the loss if the laws did change and result 1n a > |—‘diminution 0f the value of the property. (Id., at pp. 5- 6. )The court observed that because this N asserted basic assump‘upn and risk-sharing agreement were allegedly important to the defendant, lthedefendant bore the risk 0f loss because it drafted the sale contract and made an “error in A'W ' judgment” By not. including in it terms regarding these allegedly major components of the deal. U‘I (Id, at p. 6.) The same result must obtain‘ in {his case._ O\ _ The Employfilént Agreement between plaintiff Omni Women’s Health and Dr. Grooms N was formed in OCtbber 20100.» (Amended Complaint, 1]6; Ex. 1 to Amended Complaint.) This 00 was over four years before the salary paid to Dr. Grooms in December 2014 which was thé Memorandum of Points and Authorities in Support of Demurrer t0 First Amend Complaint - 9 - p-A subject 0f a Medi-Cal adjustment in 201 8, and two years before the beginning 0f payments V attributable t0 laboratory services in 2012 which were the subj ect 0f the Medi— Cal adjustment 1n 2019. As such, the “mistake” alleged by plaintiff Omni Women’ s Health 1n the Amended .Complaint indisputably relates t'ofacts that simply did not exist atthe time the Employment Agreement was formed, and does not permit plaintiff t0 avoid 0r revérse its performance of ' I \oooqox-UIAUJD making the subject paymen