Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County, Super. Ct. No. GIC856780 Linda B. Quinn, Judge.
McCONNELL, P. J.
Plaintiffs, Millbrae Serra Sanitarium, Inc., doing business as Millbrae Serra Convalescent Hospital, and 17 other nursing facilities that provide services to Medi-Cal patients, appeal a judgment entered after the court sustained without leave to amend the demurrer of defendants, State of California, the Department of Health Services, and its director, Sandra Shewry (collectively the Department). Plaintiffs contend their second amended complaint stated causes of action for breach of contract and promissory estoppel, based on the Department's failure to reimburse them for increased wages they paid their employees in reliance on former section 14110.65 of the Welfare and Institutions Code. We affirm the judgment.
In addition to Millbrae, the named plaintiffs include: Ararat Home of Los Angeles, Inc.; Alternative Choices, Inc.; J&J Care Centers, Inc.; Normal Life of California, Inc.; ResCare California, Inc.; RSCR California, Inc.; RSCR Inland, Inc.; Rock Creek, Inc.; Valley Healthcare Center, LLC; Villa Maria Healthcare Center, LLC; Sharon Care Center, LLC; Montebello Care Center, LLC; Elmcrest Care Center, LLC; Brier Oak on Sunset, LLC; Carehouse Healthcare Center, LLC; Alexandria Care Center, LLC; and Alta Care Center, LLC.
Further statutory references are also to the Welfare and Institutions Code unless otherwise specified.
FACTUAL AND PROCEDURAL BACKGROUND
To put the facts in context, we set forth provisions of former section 14110.65, which the Legislature added in August 2001 and was commonly referred to as the Wage Adjustment Rate Program (WARP). (Stats. 2001, ch. 171, § 43.5.) In enacting WARP, the Legislature intended to devise a Medi-Cal reimbursement system that improved access to quality long-term care services, and provided decent wages for nursing home workers. (§ 14126.02, subd. (a).)
A nursing facility's participation in WARP was voluntary. Former section 14110.65 stated the Department "shall, upon federal approval of a federal Medicaid State Plan amendment authorizing federal financial participation, provide a supplemental rate adjustment to the Medi-Cal reimbursement rate for specific nursing facilities . . . which have a . . . legally binding, written commitment to increase salaries, wages, or benefits for nonmanagerial, nonadministrative noncontract staff. . . . The supplemental rate adjustment shall be sufficient to fund the Medi-Cal portion of each facility's commitment that exceeds the labor cost adjustment for the covered employees that is already included in the Medi-Cal base reimbursement rate." (Id., subd. (a)(1).)
Additionally, former section 14110.65 provided "supplemental rate adjustments shall be subject to certification of the availability of funds by the Department of Finance on May 15 of each year for the following fiscal year, and subject to the extent funds are appropriated for this purpose in the annual Budget Act." (Former § 14110.65, subd. (a)(1).)
WARP specified that "to be eligible for the supplemental rate adjustment," a facility was required to submit to the Department proof of a "legally binding, written commitment to increase the salaries, wages, or benefits of existing and newly hired employees . . . during the rate year" (former § 14110.65, subd. (a)(2)(A)), and proof "of the existence of a method of enforcement of the commitment." (Id., subd. (a)(2)(B).)
Former section 14110.65, subdivision (b) also required the Department to "provide instructions on facility requirements, by November 1, 2001, or at least 60 days before implementation of this section, whichever is earlier." In developing the instructions, the Department was to "consult with provider and employee representatives." (Ibid.)
Implementation of WARP was delayed until February 2002 to allow the Department to submit and receive approval of a state plan amendment. On May 28, 2002, the Department sent nursing facilities a letter and enclosed for their "perusal" the "proposed regulations for the implementation of WARP." The letter said the "regulations constitute the 'instructions' referred to in . . . [former] section 14110.65, subdivision (b)." The letter advised that the application deadline was September 1, 2002, but the Department later extended the deadline numerous times. The letter also stated the Department would review each facility's application for a rate adjustment and respond "with a letter indicating your WARP participation approval or disapproval." (Italics added.) The letter closed by saying that former section 14110.65 required an annual decision on WARP funding, but funds were available for the program in the 2001-2002 fiscal year and funding had been proposed for the 2002-2003 fiscal year.
We grant the Department's December 28, 2007 unopposed request for judicial notice insofar as it concerns exhibit 19, the Department's May 28, 2002 proposed regulations, or instructions, for implementation of WARP. We deny the Department's opposed request for judicial notice of exhibits 1 through 18, as the relevant portions of those exhibits are government claim forms plaintiffs submitted to the California Victim Compensation and Government Claims Board. Evidence Code section 452, subdivision (c) permits the trial court and this court to take judicial notice of "Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States." The applications, however, are not official governmental acts. " ' "We have found no authority and none has been cited for the proposition that materials prepared by private parties and merely on file with state agencies may be judicially noticed pursuant to subdivision (c)." [Citations.]' " (Stevens v. Superior Court (1999) 75 Cal.App.4th 594, 608.)
The instructions were entitled "Proposed Regulations," and they noted they were subject to further revision. The instructions stated that "to be eligible to participate in [WARP], a facility shall be determined eligible by the Department" (italics added), and a facility must submit a "Rate Adjustment Request" to the Department, which would include "the completed certification form, a copy of the written commitment, and supporting documentation." The instructions stated the Department "will notify the facility of the Department's approval or disapproval determination not less than 30 days after the Department's receipt of the facility's Rate Adjustment Request." (Italics added.)
The instructions defined "written commitment" as a "legally binding, written promise, from the facility to the covered employees to increase [their] salaries, wages or benefits in compliance with . . . [former] section 14110.65." As of at least early 2003, the Department designed a form entitled "Written Commitment," which stated: "This 'written commitment' [between a facility and its employees] is submitted as an integral element of the application to receive WARP funding and becomes operative contingent on the approval by the Department." (Italics added.)
Sometime in 2002, plaintiffs entered into legally binding contracts with certain employees for higher wages, without making the contracts contingent on receiving Department approval for WARP funding, and actually began paying the higher wages. Also in 2002 plaintiffs began preparing and submitting applications to the Department for WARP funding.
In May 2003 the Legislature made former section 14110.65 inoperative, but the following August it made the statute operative again until August 1, 2004. (Stats. 2003, 1st Ex. Sess. 2003-2004, ch. 9, § 8; Stats. 2003, ch. 230, § 68.5.) The August 2003 amendment added subdivision (d)(1) to former section 14110.65, which provided: "Solely for the period commencing February 1, 2002, to July 31, 2004, inclusive, the department shall pay any supplemental rate adjustment pursuant to subdivision (a) to the extent that a facility submits a rate adjustment request to the department within the period of time specified in this subdivision, and where the department approves the supplemental rate adjustment for the particular facility." The August 2003 amendment also added subdivision (d)(2) to former section 14110.65, which provided that "the director may promulgate the instructions described in subdivision (b) by means of a letter, notice, provider bulletin, or other similar communication, without taking regulatory action."
On October 10, 2003, the Department issued its final regulations, or instructions, implementing WARP. The Department set a January 8, 2004, due date for applications.
In August 2004, however, the Legislature repealed section 14110.65. (Stats. 2004, ch. 228, § 18.5.)
Before the repeal of WARP, the Department did not approve any of plaintiffs' applications for WARP funding. In February 2006 plaintiffs filed a first amended complaint against the Department for breach of implied contract and promissory estoppel, based on its alleged violation of former section 14110.65 by not approving their applications for rate adjustments. The first amended complaint alleged that in reliance on former section 14110.65, plaintiffs, to qualify for WARP funds, entered into legally binding contracts with employees to increase their wages, and between February 2002 and July 2004 plaintiffs paid employees more than $6 million in increased wages. The first amended complaint also alleged that the Legislature had appropriated $92 million for WARP.
Defendants successfully moved for judgment on the pleadings, and in September 2006 plaintiffs filed a second amended complaint with the same causes of action and essentially the same allegations. The Department demurred to the second amended complaint, arguing former section 14110.65 did not constitute an implied promise the Department would reimburse plaintiffs for unilaterally increasing employee wages before obtaining the Department's approval for WARP funding. The court sustained the demurrer without leave to amend, and a judgment of dismissal was entered on March 1, 2007.
I
Standard of Review
"In determining whether plaintiffs properly stated a claim for relief, our standard of review is clear: ' "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed." [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.' " (Zelig v. Co. of L. A. (2002) 27 Cal.4th 1112, 1126.) Our review is de novo.
II
Breach of Implied Contract
A
Plaintiffs contend the second amended complaint stated a cause of action for breach of implied contract, because it alleged former section 14110.65 contained an offer they accepted through their conduct — entering into legally binding contracts to pay their employees increased wages and applying to the Department for reimbursement under WARP. Plaintiffs assert that both former section 14110.65 and the Department's instructions pertaining to WARP "required skilled nursing facilities to enter into . . . legally binding written commitments and to pay the increased wages to direct care staff before applying and receiving the higher reimbursement rates from" the Department.
"[T]he vital elements of a cause of action based on contract are mutual assent (usually accomplished through the medium of an offer and acceptance) and consideration. As to the basic elements, there is no difference between an express and implied contract. While an express contract is defined as one, the terms of which are stated in words (Civ. Code, § 1621), an implied contract is an agreement, the existence and terms of which are manifested by conduct (Civ. Code, § 1621). . . . [B]oth types of contract are identical in that they require a meeting of minds or agreement [citation]. Thus, it is evident that both the express contract and contract implied in fact are founded upon an ascertained agreement or, in other words, are consensual in nature, the substantial difference being in the mode of proof by which they are established [citation]. . . . 'The true implied contract consists of obligations arising from a mutual agreement and intent to promise where the agreement and promise have not been expressed in words.' " (Division of Labor Enforcement v. Transpacific Transportation Co. (1977) 69 Cal.App.3d 268, 275, original italics.)
As plaintiffs point out, "[i]n California law, a legislative intent to grant contractual rights can be implied from a statute if it contains an unambiguous element of exchange of consideration by a private party for consideration offered by the state." (California Teachers Assn. v. Cory (1984) 155 Cal.App.3d 494, 505 (Cory).) "Under ordinary principles of contract law a bargain may be sealed by performance with knowledge of the offer." (Id. at p. 507.)
In County of San Luis Obispo v. Gage (1903) 139 Cal. 398 (Gage),on which plaintiffs here rely, the county sued the state for expenses it incurred in supporting half-orphans during a six-month period, and the state defended on the ground the county's claim was untimely. An 1880 legislative act appropriated $100 per year for each orphan and $75 per year for each half-orphan or abandoned child that a county supported. Initially, the court was required to determine whether the county's action was for breach of implied contract, and thus subject to a two-year statute of limitations. (Id. at p. 405.) The court answered the question in the affirmative, explaining the "obligation . . . arises from the operation of the act of 1880. The act itself, coupled with the subsequent performance of the conditions by the respondent, furnishes all the elements which are necessary to the formation and existence of an implied contract." (Id. at p. 408.) The court held the claim was untimely. (Id. at p. 409.)
Plaintiffs also cite California Medical Association v. Lackner (1981) 117 Cal.App.3d 552 (Lackner), in which physicians and dentists who served Medi-Cal patients sued the Department because it did not retroactively pay them increased reimbursement rates. The Legislature passed urgency legislation, effective September 22, 1976, requiring the Department to establish a new reimbursement schedule with generally higher rates, retroactive to July 1, 1976. For services rendered between July 1 and September 22, 1976, the Department paid the plaintiffs the lower rates set by Department regulations, because it believed the retroactivity provision of the statute was unconstitutional. (Id. at pp. 556-558.) The Department contended the regulations in effect before September 22, 1976, constituted "a promise by the state to pay physicians and dentists for services rendered to Medi-Cal patients at the rates set forth therein and that providers accepted the state's offer by obtaining Medi-Cal 'provider numbers' necessary for billing purposes [citation] and by treating such patients." (Id. at pp. 557-558.)
The court agreed with the Department, and held the retroactivity provision violated the state Constitution, which prohibited payment of extra compensation to contractors for services already rendered. (Lackner, supra, 117 Cal.App.3d at p. 555.) In finding the regulations in effect before September 22, 1976, formed an implied contract, the court relied in part on Gage, supra, 139 Cal. 398. (Lackner, supra, at pp. 560-561.)
Cory, supra, 155 Cal.App.3d 494, was an action by the California Teachers Association and others to compel the state to transfer funds from the general fund to the Teacher's Retirement Fund, as contributions to their pension plans. The issue was whether continuing appropriation statutes in the Education Code conferred contract rights. Former Education Code sections 23401 and 23402 were enacted in 1979, and they "appropriated amounts increasing annually according to statutory formulae." (Cory, supra, at pp. 501-502.) The first transfers to the Teachers' Retirement Fund were to be made for the fiscal year beginning July 1, 1980, but the state's budget act for that fiscal year contained a reduced appropriation in lieu of the statutory appropriation. Likewise, in lieu reduced appropriations were enacted in the following two state budget acts. (Id. at pp. 502-503.)
The state argued former Education Code sections 23401 and 23402 did not give rise to a contract, and accordingly the sums provided for in the statutes could be modified at will. The court disagreed, and relying on Gage, supra, 139 Cal. 398, it explained "a legislative intent to grant contractual rights can be implied from a statute if it contains an unambiguous element of exchange of consideration by a private party for consideration offered by the state." (Cory, supra, 155 Cal.App.3d at p. 505.) The court held that former Education Code sections 23401 and 23402 constituted an implied contract because "[t]heir language manifests a continuing obligation to fund the Teachers' Retirement Fund in future years pursuant to statutory formulae. [Citation.] In the enactment creating the obligation the provisions of law conditioning the funding upon appropriations in the State Budget Act were repealed. [Citation.] By these means a commitment to permanency of funding was made." (Id. at p. 506.)
We conclude the Gage case and its progeny are inapplicable here, and neither former section 14110.65 nor its implementing regulations, or instructions, became an implied contract through the plaintiffs' unilateral payment of increased wages to their employees before they received Department approval for WARP funding. Cory is distinguishable because here, there was no commitment to permanency of funding.
Further, a central element of Gage and Cory was the plaintiffs' justifiable reliance on the legislation at issue. Here, the second amended complaint alleged reliance, but former section 14110.65 and the instructions the Department promulgated show that any reliance by plaintiffs was unjustified. Contrary to plaintiffs' position, they were not required to enter into legally binding commitments with employees to increase wages before they applied for WARP funding or received the Department's approval. Also, former section 14110.65 did not indicate that if nursing facilities gave their employees raises and applied for WARP funding, the funding would automatically be approved.
Former section 14110.65, subdivision (a)(1) provided that the Department shall provide a supplemental rate adjustment to the Medi-Cal rate for a facility that had entered into a "legally binding, written commitment to increase salaries, wages, or benefits." Subdivision (b) of former section 14110.65, however, also required the Department to "provide instructions on facility requirements" before implementation of the statute. The May 2002 written instructions, to which the second amended complaint refers, notified facilities that eligibility for WARP funding was subject to the Department's prior approval, and the Department would notify a facility of the Department's approval or disapproval not less than 30 days after its receipt of an application.
The second amended complaint's justifiable reliance claim is belied by the facts, and plaintiffs' unilateral decision to increase their employee's wages on the expectation they would ultimately qualify for WARP funding did not give rise to an action for breach of implied contract. If plaintiffs intended to pay increased wages only if they received WARP funding, they should have made their obligations to employees contingent on the Department's approval. Further, to any extent plaintiffs unilaterally increased employee wages before the Department issued instructions in May 2002, they cannot expect reimbursement under WARP.
Plaintiffs' theory would lead to absurd results, because under it virtually any statute that made a private party eligible for some type of funding would automatically entitle an applicant to funds, regardless of a preapproval requirement or other qualifications in the statute or implementing regulations. As the Department notes, "[j]ust as all indigent Californians may be eligible for the Medi-Cal program, these same indigent individuals are not entitled to Medi-Cal benefits until they apply [for] and are approved to receive such benefits; merely applying for Medi-Cal does not entitle a person to benefits until he or she is approved."
B
Plaintiffs also assert the second amended complaint states a cause of action for breach of implied contract because the requirement of the Department's prior approval was not imposed until August 2003, when the Legislature amended former section 14110.65 to expressly provide the Department would pay a rate adjustment only on approval (former § 14110.65, subd. (d)(1)). Again, however, the original version of former section 14110.65 required the Department to develop written instructions, and the instructions expressly made WARP funding contingent on Department approval. Accordingly, plaintiffs' decision to raise employee wages before obtaining Department approval for WARP funding does not give rise to a breach of implied contract action, even for the time prior to the August 2003 amendment to former section 14110.65.
Further, plaintiffs contend that if the Department's prior approval was a condition of receiving WARP funds, the condition was excused by the Department's refusal to approve any application for WARP funding. Plaintiffs cite Bewick v. Mecham (1945) 26 Cal.2d 92, 99, for the proposition that a "party who prevents fulfillment of a condition of his own obligation commits a breach of contract [citations] and cannot rely on such condition to defeat his liability." (See also 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 821, p. 910 ["A person cannot take advantage of his or her own act or omission to escape liability; if the person prevents or makes impossible the performance or happening of a condition precedent, the condition is excused"].)
Neither Bewick v. Mecham nor the other cases plaintiffs cite for the same general point of law concerns an alleged implied contract with a governmental agency based on a statute. In this case, the issue is whether former section 14110.65 constituted an offer to pay, conditioned only on plaintiffs' payment of increased wages to their employees and submission of applications for WARP funding (Gage, supra, 139 Cal. at p. 407), and we have found against plaintiffs on that issue. The requirement of the Department's prior approval was not a condition of the alleged implied contract, as the only condition of contract formation was allegedly plaintiffs' performance in reliance on former section 14110.65.
See Carl v. Eade (1927) 81 Cal.App. 356; Thomas v. Cowan (1929) 99 Cal.App. 140; Pacific Venture Corp. v. Huey (1940) 15 Cal.2d 711, 717; Crillo v. Curtola (1949) 91 Cal.App.2d 263; Unruh v. Smith (1954) 123 Cal.App.2d 431; Stone v. Carpenter (1963) 211 Cal.App.2d 491; Green v. Linn (1962) 210 Cal.App.2d 762, 767; General Ins. Co. v. Commerce Hyatt House (1970) 5 Cal.App.3d 460, 468; Cal.App.2d 762, 767; and Jacobs v. Tenneco West (1986) 186 Cal.App.3d 1413, 1417-1418.
"It is well settled that actions based on obligations created by statute may or may not be contractual in nature." (Cate v. Stapleton (1941) 43 Cal.App.2d 492, 495.) To any extent the Department should have promulgated final implementing regulations sooner, or should have considered and approved plaintiffs' applications based on the May 2002 instructions, but did not do so, plaintiffs may have had recourse in a mandate action. (Code Civ. Proc., §§ 1085, 1094.5; Gage, supra, 139 Cal. at p. 402.) They had, however, no remedy in contract.
III
Promissory Estoppel
Plaintiffs also contend they stated a cause of action for promissory estoppel.
" 'In California, under the doctrine of promissory estoppel, a "promise which the promisor should reasonably expect to induce action or forebearance on the part of the promisee of a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires." [Citations.] Promissory estoppel is "a doctrine which employs equitable principles to satisfy the requirement that consideration must be given in exchange for the promise sought to be enforced." ' [Citation.] The elements of promissory estoppel are: (1) a clear promise, (2) reliance, (3) substantial detriment, and (4) damages ' "measured by the extent of the obligations assumed and not performed." ' " (Poway Royal Mobilehome Owners Assn. v. City of Poway (2007) 149 Cal.App.4th 1460, 1470-1471 (Poway Royal).)
"It is well established that 'an estoppel will not be applied against the government if to do so would effectively nullify "a strong rule of policy, adopted for the benefit of the public . . . ." ' [Citations.] ' "The courts of this state have been careful to apply the rules of estoppel against a public agency only in those special cases where the interests of justice clearly require it." ' [Citation.] The ' "facts upon which such an estoppel must rest go beyond the ordinary principles of estoppel and each case must be examined carefully and rigidly to be sure that a precedent is not being established through which, by favoritism or otherwise, the public interest may be mulcted or public policy defeated." ' " (Poway Royal, supra, 149 Cal.App.4th at p. 1471.)
Plaintiffs assert former section 14110.65 promised to increase their reimbursement rate in exchange for their meeting certain requirements, such as entering into legally binding written commitments with employees to increase their wages and actually paying the increased wages. As discussed in the above section on implied contract, however, the Department notified facilities in writing that WARP funding was subject to Department approval. Plaintiffs are incorrect in asserting the "State reasonably expected to induce [them] to pay such increased wages" before obtaining Department approval. The promissory estoppel doctrine is inapplicable.
DISPOSITION
The judgment is affirmed. Defendants are entitled to costs on appeal.
WE CONCUR: NARES, J., IRION, J.