Calif. Justices Open Door To Nonprofits, Unions Suing Companies

A landmark decision by the California Supreme Court confirming that the California Medical Association can sue Aetna Health of California for alleged violations of the Unfair Competition Law paves the way for other nonprofits, unions and public interest groups to sue companies in the Golden State for engaging in allegedly illegal practices to stifle competition.

In the unanimous decision issued Monday, the California Supreme Court held, for the first time, that a public interest advocacy organization can have standing to bring claims alleging unlawful, unfair or fraudulent business practices that threaten their organization's mission, if they have incurred costs responding to those perceived bad acts.

When an organization has incurred such expenditures as the CMA has, it has standing to bring claims under the UCL because it "suffered injury in fact" and "lost money or property as a result of the unfair competition," wrote California Supreme Court Justice Kelli Evans in the 7-0 opinion.

The decision brings back to life a case that began more than a decade ago.

The CMA, a professional association that represents more than 37,000 California physicians, sued Aetna Health in 2012 claiming that the insurance company, via its "Network Intervention Policy," had been discouraging Aetna-insured patients from going out of network, even though their preferred provider organization, or PPO, plans included such benefits. 

According to the CMA, Aetna harassed physicians or terminated relationships with physicians for referring patients with PPO plans to out-of-network facilities.

Such a "harmful and illegal" policy, the CMA said, "directly interfered with the doctor-patient relationship and physicians' independent medical judgment, in violation of numerous state laws."

The CMA's general counsel estimated that the organization diverted hundreds of hours of staff time to responding to Aetna's alleged policy.

Aetna, however, maintained that the policy was adopted, in part, to stop physicians from referring patients to facilities in which they had financial interests. Furthermore, Aetna argued that its policy applied to individual physicians — not to the CMA and that the CMA lacked standing to sue.

A Los Angeles County trial court in 2019 agreed with Aetna that the CMA's diversion-of-resources argument wasn't enough to establish standing under the UCL and granted summary judgment to Aetna. The Court of Appeal affirmed that decision, holding that amendments to the UCL in 2004 had eliminated such representational standing.

The CMA appealed to the California Supreme Court, which agreed in 2021 to review the case.

The California attorney general as well as local prosecutors from San Francisco, Oakland, San Jose and San Diego waded into the fight, filing amicus briefs in support of the CMA.

Likewise, the public interest nonprofit Consumer Watchdog filed an amicus brief supporting the CMA, as did labor unions, including the Writers Guild of America West, United Food and Commercial Workers Western States Council and United Farm Workers of America.

Meanwhile, the U.S. Chamber of Commerce penned an amicus brief siding with Aetna, warning the court that a ruling in the CMA's favor could open the floodgates for frivolous lawsuits against companies. The California Association of Health Plans and the Association of California Life and Health Insurance Companies also submitted amicus briefs in support of Aetna.

But on Monday, California's top court unanimously agreed that the trial court had erred in granting Aetna's bid for summary judgment and that the Court of Appeal had likewise erred in affirming the lower court ruling.

"We hold that the UCL's standing requirements are satisfied when an organization, in furtherance of a bona fide, preexisting mission, incurs costs to respond to perceived unfair competition that threatens that mission, so long as those expenditures are independent of costs incurred in UCL litigation or preparations for such litigation," Justice Evans wrote.

The high court also rejected concerns aired by Aetna and its amici.

"We are not persuaded that recognizing a diversion-of-resources theory in this case will open the door to abuses of the sort suggested by Aetna and the amicus curiae," the court wrote in the opinion.

The justices noted the question of UCL standing presented in this case "is one of first impression in this court" and that the diversion of salaried staff time and other office resources can constitute a loss of money or property for CMA.

The California Medical Association lauded the decision in a statement Monday, calling it "a significant victory for providers, consumers and public interest advocates."

"The outcome of this case highlights the importance of the UCL to combat unfair and deceptive business practices in the health insurance industry and beyond," the CMA said. "The ruling empowers membership organizations like CMA and other public interest advocates in California to defend their interests and the interests of their constituents against corporations engaging in unlawful conduct."
 
The CMA's counsel, Stacey Leyton of Altshuler Berzon LLP, told Law360 in an email Tuesday, "We are very pleased that the California Supreme Court has preserved the rights of associations like the California Medical Association to sue under California's Unfair Competition Law when businesses are violating the law."

"Our position that organizations have standing under the UCL when they are forced to divert resources to counter a business' unlawful activity was vindicated in every respect by the unanimous decision," Leyton said.

Aetna's executive director of communications, Alex Kepnes, declined Law360's request for comment Tuesday.

The California Medical Association is represented by Alan M. Mansfield of Whatley Kallas LLP and Stacey M. Leyton and Michael Rubin of Altshuler Berzon LLP.

Aetna Health of California Inc. is represented by Matthew D. Umhofer and Elizabeth Anne Mitchell of Umhofer Mitchell & King LLP and Benjamin N. Hazelwood, Enu A Mainigi, Grant Geyerman and Craig Singer of Williams & Connolly LLP.

The case is California Medical Association v. Aetna Health Of California Inc., case number S269212, in the Supreme Court Of California.