Aegis Medical Systems, Inc. v. Zito











Filed 1/28/13 Aegis Medical Systems, Inc. v. Zito CA1/5











>NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.







IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA



FIRST
APPELLATE DISTRICT



DIVISION
FIVE




>

>AEGIS MEDICAL SYSTEMS, INC., > Plaintiff and Appellant, >v. >RENEE ZITO et al., > Defendants and Respondents.

A134907 (>Alameda> County Super. >Ct.> No. RG10524741)

Appellant
Aegis Medical Systems, Inc. (Aegis) operates a network of narcotic treatment
clinics and directly contracted with the state’s Department of Alcohol and Drug
Programs (the Department) to provide methadone maintenance services in Kern,
Stanislaus and other counties as a part of the Medi-Cal drug treatment
program. In 2010, the Department and its
director, Renee Zito, issued Bulletin 10-06 (Bulletin) stating that it would
terminate direct contracts with drug treatment providers except in counties that
were not otherwise providing or contracting for treatment services as required
by federal and state law. After being
notified that its state contracts in Kern and Stanislaus
Counties would be terminated under
this policy, Aegis brought a suit challenging the Bulletin as an unlawful href="http://www.mcmillanlaw.com/">“underground regulation” issued in
violation of the Administrative Procedure Act (APA). (See >Davenport> v. Superior Court (2012) 202
Cal.App.4th 665, 669.)

The
superior court denied relief, but Aegis prevailed on appeal and this court
concluded in an unpublished opinion that the Bulletin was an invalid
underground regulation. (>Aegis Medical Systems, Inc. v. Renee Zito
et al., A129504 (June 30, 2011
unpub. opn.).) On remand to the trial
court, Aegis filed an unsuccessful motion to recover its attorney fees under
the private attorney general doctrine as codified in Code of Civil Procedure
section 1021.5 (hereafter section 1021.5).
We conclude that section 1021.5 does not apply because, as the
trial court correctly determined, the financial burden of this litigation was
not out of proportion to Aegis’s pecuniary stake in the proceedings. We therefore affirm the order denying
attorney fees.

FACTS
AND PROCEDURAL HISTORY

At
the time relevant to this case, the Department (acting under an interagency
agreement with the California Department of Health Services) was responsible
for insuring that drug treatment services, including methadone maintenance,
were provided at the county level as required by federal and state law under
the Medicaid/Medi-Cal program. If a
county refused to provide the required drug treatment services, the Department
would “contract directly with the certified providers in that county.” (Health & Saf. Code, former
§§ 11758.40, 11758.43.)href="#_ftn1"
name="_ftnref1" title="">[1] Aegis is one such certified drug treatment
provider and has contracted directly with the Department to provide methadone
maintenance services.

On
June 21, 2010, the Department issued the Bulletin, which stated that the
Department would only enter into contracts with drug treatment providers for
services that were not being provided by the counties, and would terminate any
contracts that did not satisfy this criterion.
This represented a shift in policy because the Department had formerly
exercised its discretion to enter into direct contracts with drug treatment
providers in situations where a county was providing the same services. Also on June 21, 2010, the Department sent
written notice to Aegis that it would be terminating contracts in Kern and
Stanislaus Counties pursuant to the Bulletin.


Aegis
responded to the notice by filing a “Complaint for Declaratory and Injunctive
Relief; Petition for Writ of Mandate” (the Petition). The Petition alleged that the Bulletin was an
invalid regulation that had not been adopted in accordance with the rulemaking
provisions of the APA. It sought a
declaration that the Bulletin was void and could not be used or relied upon in
any manner, a writ of mandate directing the Department to cease its reliance on
the Bulletin, and injunctive relief prohibiting the Department from terminating
its contracts in Kern and Stanislaus Counties.
The superior court denied relief and Aegis appealed. On June 30, 2011, this court reversed the
superior court’s order, concluding that the Department had not complied with
the APA when issuing the Bulletin. It
directed the superior court to “enter a judgment granting declaratory relief,
to issue a peremptory writ of mandate, and to issue such injunctive relief as
may be appropriate and consistent with this opinion.” (Aegis
Medical Systems, Inc. v. Renee Zito et al., supra (unpub. opn.).)

On
remand, the superior court entered a judgment that (1) declared the Bulletin to
be invalid because it was not promulgated in accordance with the APA; and (2) directed
the issuance of a writ of mandate commanding the Department to publish notice
that the Bulletin had been invalidated and to refrain from enforcing the
Bulletin. The Department filed a return
indicating that it has complied with the writ.

Aegis
filed a motion for attorney fees and expenses under section 1021.5, which
provides in relevant part, “Upon motion, a court may award attorneys’ fees to a
successful party against one or more opposing parties in any action which has
resulted in the enforcement of an important right affecting the public interest
if: (a) a significant benefit, whether
pecuniary or nonpecuniary, has been conferred on the general public or a large
class of persons, (b) the necessity and financial burden of private enforcement
. . . are such as to make the award appropriate, and (c) such fees should not
in the interests of justice be paid out of the recovery, if any.”

The
motion sought $243,165.94 in attorney fees incurred during the litigation
(233.5 hours at $675 an hour, 11.2 hours at $350 an hour, with a multiplier of
1.5 based on the complexity of the litigation); $867.19 in costs; and
$42,462.50 in fees and costs for bringing the motion. Aegis argued that its lawsuit had secured an important
right affecting the public interest because it enforced compliance with the APA
rulemaking requirements. It further
argued that vindicating the legislative intent behind the APA “benefitted all
Californians,” and particularly the methadone patients and health care
providers who had not been given a voice in the implementation of the new
policy. Aegis claimed that its interest
in the litigation was not financial, because it would be reimbursed by the same
amount whether it contracted with the state or with the counties. It submitted a declaration by its executive
vice-president stating that the Department had extended its contracts with
Aegis until Aegis was able to directly contract with each county, so that there
was no lapse of services to Aegis’s patients.

In
its opposition to the motion for attorney fees under section 1021.5, the
Department responded that the public did not benefit from the lawsuit, which
Aegis had brought to protect its own pecuniary interests in its contracts with
the state. The Department argued that
the invalidation of the Bulletin did not preclude the state from terminating
its contracts with Aegis and other providers because the contracts themselves
gave the Department the right to terminate for any reason, and, moreover, the
final judgment in the case did not require the Department to maintain its
contracts with any drug treatment providers.
According to the Department, Aegis’s litigation costs were not
disproportionate to its own expected financial gain, as it was seeking to
maintain contracts with the state in Kern and Stanislaus Counties that were
worth over $4 million. Susan King, the
Manager of the Department’s Fiscal Management and Accountability Branch, signed
a declaration stating that Aegis’s contracts with the Department totaled
$4,034,662 in fiscal year 2008-2009, and $7,399,811 in fiscal year 2009-2010,
including contracts worth $4,255,984 in Kern and Stanislaus Counties in fiscal
year 2009-2010.

The
superior court denied Aegis’s motion for attorney fees and issued the following
written order:

“It
appears to the court that while the public garnered the benefit that an
‘underground’ regulation was declared invalid, that benefit was only
coincidental to the action, and that the gravamen of the action was the attack
on the underground regulation in order to compel the reinstatement of Aegis’
contracts with the state agency.

“Despite
Aegis’ argument that it filed the case for the benefit of the statewide
community of narcotic treatment providers, this court finds that the lawsuit
was instituted to protect [] Aegis’ pecuniary interests.

“
Aegis[] argued that ‘. . . Plaintiff did not stand to reap any financial
benefit from pursuing this lawsuit’ [citation] and ‘Plaintiff’s suit benefitted
all drug-Medi[-C]al providers.’
[Citation.]

“Aegis’
posture is belied by the fact that concurrently with its filing of the lawsuit
plaintiff sought provisional relief by way of an alternative writ seeking the
court’s immediate order that the state agency be ordered to ‘refrain from
terminating Plaintiff’s Drug Medi[-]Cal contracts for services in Kern and
Stanislaus Counties. . .’

“Aegis[]
also sought an order invalidating [the Bulletin] which had led, in part, to the
termination of Aegis’ contracts, but significantly, Aegis did not seek an order
that the state refrain from terminating [] any provider’s contracts in the
statewide community of drug Medi[-]Cal providers other than their own.

“Moreover,
but for the fact that Aegis was able to mitigate the loss of the state
contracts by entering into new contracts directly with Kern and Stanislaus
Counties, the cost of this litigation would have been dwarfed by the financial
value of the litigation to the plaintiff.

“As
stated in Beach Colony II v. California
Coastal Com[.] (1985) 166
Cal[.]App[.]3d 106 at p. 114, [Code of Civil Procedure section 1021.5] ‘was not
designed as a method for rewarding litigants motivated by their own pecuniary
interests who only coincidentally protected a public interest.’ ”

Aegis
appeals from this order.

DISCUSSION

I.

Section 1021.5

Section
1021.5 codifies the private attorney general doctrine enunciated in >Serrano v. Priest (1977) 20 Cal.3d 25,
which “ ‘ “ ‘rests upon the recognition that privately initiated lawsuits are
often essential to the effectuation of fundamental public policies embodied in
constitutional or statutory provisions, and that, without some mechanism
authorizing the award of attorney fees, private actions to enforce such
important public policies will as a practical matter frequently be infeasible.’
” ’ ” (Healdsburg Citizens for Sustainable Solutions v. City of Healdsburg
(2012) 206 Cal.App.4th 988, 992.) Case
law has construed an award under section 1021.5 to require a showing that (1)
the litigation enforced an important right affecting the public interest; (2)
it conferred a significant benefit on the general public or a large class of
persons; and (3) the necessity and financial burden of private enforcement were
such as to make the award appropriate. (>Conservatorship of Whitley (2010) 50
Cal.4th 1206, 1214 (Whitley).)

The
third, “financial burden” element, the one dispositive of this appeal, requires
the court to examine the necessity of private enforcement and the cost of the
litigation relative to the financial benefit it yielded or could reasonably have
been expected to yield to the litigant.
(Whitley, supra, 50 Cal.4th at pp. 1214-1215.) “ ‘ “An award on the ‘private attorney
general’ theory is appropriate when the cost of the claimant’s legal victory
transcends his personal interest, that is, when the necessity for pursuing the
lawsuit placed a burden on the plaintiff ‘out of proportion to his individual
stake in the matter.’ [Citation.]” ’ ” (>Id. at p. 1215.) A party seeking fees under section 1021.5 has
the burden of establishing that its litigation costs transcend its personal
interests. (Save Open Space Santa Monica Mountains v. Superior Court (2000) 84
Cal.App.4th 235, 246-247; Beach Colony II
v. California Coastal Com., supra, 166 Cal.App.3d at p. 113.)

To
determine whether the “financial burden” element has been satisfied, a court
compares the actual cost of bringing the case with estimated value of the case
to the successful litigant at the time that litigant decided to pursue
litigation; i.e., the monetary value of the benefits to be obtained, discounted
by an estimate of the probability of success.
(Whitley, supra, 50 Cal.4th at pp. 1215.)
“The trial court must first fix—or at least estimate—the monetary value
of the benefits obtained by the successful litigants themselves. . . . Once the
court is able to put some kind of number on the gains actually attained it must
discount these total benefits by some estimate of the probability of success at
the time the vital litigation decisions were made which eventually produced the
successful outcome. . . .
[¶] After approximating the estimated value of the case at the
time the vital litigation decisions were being made, the court must then turn
to the costs of the litigation—the legal fees, deposition costs, expert witness
fees, etc., which may have been required to bring the case to fruition. . .
. [¶] The final step is to place
the estimated value of the case beside the actual cost and make the value
judgment whether it is desirable to offer the bounty of a court-awarded fee in
order to encourage litigation of the sort involved in this case. . . . [A]
bounty will be appropriate except where the expected value of the litigant's
own monetary award exceeds by a substantial margin the actual litigation
costs.” (Los Angeles Police Protective League v. City of Los Angeles (1986)
188 Cal.App.3d 1, 9-10 (LAPPL).)

II.

>Standard of Review

In
denying fees under section 1021.5, the trial court in this case determined that
“but for the fact that Aegis was able to mitigate the loss of the state
contracts by entering into new contracts directly with Kern and Stanislaus
Counties, the cost of this litigation would have been dwarfed by the financial
value of the litigation to the plaintiff.”
This was, effectively, a determination that Aegis had failed to satisfy
the financial burden element of section 1021.5 because the cost of the
litigation was not out of proportion to the value of the case >to Aegis. Before we decide whether this finding should
be upheld on appeal, we take a brief detour to consider the appropriate
standard of appellate review.

A
superior court’s ruling on a request for attorney fees under section 1021.5 is
generally reviewed for abuse of discretion.
(Vasquez v. State of California
(2008) 45 Cal.4th 243, 251.) De novo
review is appropriate when the superior court’s determination of whether the
statutory criteria were met presents an issue of statutory construction or a
question of law. (Whitley, supra, 50 Cal.4th at p. 1213; Serrano v. Stefan Merli Plastering Co., Inc. (2011) 52 Cal.4th 1018,
1025-1026.) Appellate courts have also
reviewed an attorney fee order de novo when a published appellate opinion
supplied the basis for the fees because, in such cases, the appellate court is
“in at least as good a position as the trial court to determine whether section
1021.5 fees should be awarded.” (>Wilson v. San Luis Obispo County Democratic
Central Com. (2011) 192 Cal.App.4th 918, 924.)

The
financial burden element of section 1021.5 requires a determination of the cost
of the litigation relative to its value to Aegis. This is not a question of law, nor does it
rest on our prior (unpublished) appellate opinion, which drew no conclusions
about the value of the litigation. The
trial court, being more familiar with the dynamics of the litigation, is in a
better position to assess the financial burden of the lawsuit in relation to
its value to Aegis. We review the trial
court’s order for abuse of discretion.
(See LAPPL, >supra, 188 Cal.App.3d at p. 11 [trial
court’s assessment of financial burden element merits deference from appellate
court, though appellate court “need not shrink” from correcting errors in
methodology or calculation].)

III.

>Analysis

Aegis
calculated its adjusted lodestar of attorney fees (excluding those expended on
the motion for fees) to be $161,532, and its counsel asked the court to apply a
1.5 multiplier for total fees of $243,165. The trial court concluded that Aegis brought
this litigation to preserve its direct contracts with the state in Kern and
Stanislaus Counties, as evidenced by its having sought injunctive relief that
would have prohibited the termination of those contracts. It denied Aegis’s request for fees under
section 1021.5 because the value of those contracts far exceeded the fees
incurred.

The
court did not abuse its discretion in so concluding. The Department, in its opposition to Aegis’s
motion for attorney fees under section 1021.5, submitted evidence that the
contracts in Kern and Stanislaus Counties were worth $4,255,984 in fiscal year
2009-2010. Granting that this figure
does not reflect the profit earned by Aegis, it can, nonetheless, be reasonably
inferred that the value of the contracts to Aegis was several times greater
than the actual cost of bringing this case.

Citing> Whitley, supra, 50 Cal.4th 1206, Aegis argues that it did not have a
quantifiable pecuniary interest that can be compared to the cost of the
litigation because it did not seek, and was not awarded, monetary relief. We are not persuaded. The plaintiff in Whitley was the conservator of her severely disabled brother and
brought litigation resulting in a published appellate opinion that extended
certain procedural protections to disabled persons challenging a community
placement. (Id. pp. 1211-1212.) She
sought fees under section 1021.5, which were denied on the ground that the
financial burden imposed by the case was not out of proportion to her personal
interest in her brother’s well-being. (>Whitley, at p. 1213.) The Supreme Court held that “a litigant’s
personal nonpecuniary motives may not be used to disqualify that litigant from
obtaining fees” under section 1021.5 (Whitley,
at p. 1211), noting that such interests “ ‘are incapable of reasonably
accurate valuation.’ ” (>Id. at p. 1225.)

Though
Aegis was seeking equitable relief
rather than money damages, the goal of this equitable relief was to maintain
contracts with the state that would otherwise have been terminated under the
Bulletin. The benefit to be obtained
from this litigation was pecuniary, even if that pecuniary benefit did not come
in the form of money damages. The
intangible interests of the plaintiff in Whitley
are far different than Aegis’s much more concrete financial interest in
maintaining its state contracts.

Aegis
suggests that it did not stand to gain any financial benefit from this
litigation because the Department continued to abide by the contracts in Kern
and Stanislaus Counties until Aegis entered into contracts with those counties
directly. Again we disagree. In assessing the financial burdens and
benefits of the litigation, the proper focus in not on the amount ultimately
recovered, but “on the monetary value of the benefits that the successful
litigant reasonably expected to obtain.”
(Collins v. City of Los Angeles
(2012) 205 Cal.App.4th 140, 155, fn. 10; see also Satrap v. Pacific Gas & Electric (1996) 42 Cal.App.4th 72, 79
[value of litigation is based on “realistic expected recovery” rather than
“actual recovery”]; and Beasley v. Wells
Fargo Bank (1991) 235 Cal.App.3d 1407, 1414, overruled on other grounds in >Olson v. Automobile Club of Southern
California (2008) 42 Cal.4th 1142, 1151; Notrica v. State Comp. Ins. Fund (1999) 70 Cal.App.4th 911, 955
[“the court must look at the estimated value of the case when the critical
litigation decisions were being made, not the actual recovery after
trial”].) That Aegis was ultimately able
to contract with the counties does not affect the expected value of the case
when litigation decisions were made.

Aegis
argues that the superior court improperly focused on its “initial subjective
motivation” behind the lawsuit, again citing Whitley, supra, 50
Cal.4th at p. 1219. We disagree. In Whitley,
the court held that a litigant’s personal, nonpecuniary motives did not
preclude an award of fees on the theory that having such a stake in the
litigation offset the costs under the “financial burden” prong of section
1021.5. (Whitley, supra, 50
Cal.4th 1211.) In this context, the
court rejected an argument that the litigant’s reasons for bringing suit were
controlling: “[T]he Legislature that enacted section 1021.5 was not so much
concerned with what brought a litigant with a potential public interest case
into an attorney’s office, but rather with allowing that litigation to move
forward from there by offering at least the prospect that the financial burden
of the litigation could be shifted to the opposing party if the litigant
prevailed.” (Whitley, supra, 50
Cal.4th at p. 1220.)

We
do not construe the superior court’s order to show an improper focus on Aegis’s
reasons for bringing the lawsuit. The
trial court observed in its order that Aegis filed this suit to protect its own
pecuniary interests, as evidenced by its having sought injunctive relief for
itself alone. This was not tantamount to
a finding that Aegis’s subjective motivation for bringing suit itself warranted
a denial of fees—rather, the court was rejecting Aegis’s claim that it lacked a
pecuniary interest in the litigation.

The
superior court’s observation that but for the direct contracts with Kern and
Stanislaus Counties, the cost of the litigation would have been “dwarfed” by
its financial value shows that it was properly focused on the third element of
section 1021.5—whether the financial burden of litigation was objectively
disproportionate to Aegis’s individual stake in the case. “[A] court may speak of the litigant’s
motivation ‘as a shorthand reference to a court’s conclusion that the objective
financial incentives for prosecuting the lawsuit were not disproportionate to
the financial burden.’ Motivation
language is particularly useful because in assessing the financial burdens and
benefits in the context of section 1021.5, we are evaluating incentives rather
than outcomes.” (Whitley, supra, 50
Cal.4th at p. 1220.)

Because
we conclude the trial court did not abuse its discretion in determining that
Aegis failed to meet the “financial burden” element of section 1021.5, we need
not consider whether it satisfied the remaining criteria, i.e., that the action
resulted in the enforcement of an important right affecting the public interest
and that it conferred a significant benefit on the general public or a large
class of people.

DISPOSITION

The
order denying an award of attorney fees under section 1021.5 is affirmed. Respondents shall recover ordinary href="http://www.mcmillanlaw.com/">costs on appeal.







NEEDHAM,
J.





We concur.







SIMONS, Acting P. J.







BRUINIERS, J.