Filed 7/16/26 Dual Diagnosis Treatment Center v. Health Net CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
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 This opinion has not been certified for publication or ordered published for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
SECOND APPELLATE DISTRICT
DIVISION THREE
DUAL DIAGNOSIS TREATMENT B331260
CENTER, INC., et al.,
(Los Angeles County
Plaintiffs, Cross-defendants and Super. Ct. No. LC104357)
Appellants,
v.
HEALTH NET, INC., et al.,
Defendants and Respondents;
HEALTH NET LIFE INSURANCE
COMPANY,
Defendant, Cross-complainant
and Respondent.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Virginia C. Keeny, Judge. Affirmed.
Kantor & Kantor, Lisa S. Kantor, J. David Oswalt and
Timothy J. Rozelle; Dawson & Rosenthal, Steven C. Dawson,
Anita Rosenthal and Alexandra O. Dawson for Plaintiffs, Cross-
defendants and Appellants.
Manatt, Phelps & Phillips, Gregory N. Pimstone and
Joanna S. McCallum for Defendant, Cross-complainant and
Respondent and for Defendants and Respondents.
‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗‗
This appeal arises out of a dispute between Sovereign, a
network of mental health and substance use disorder treatment
centers, and Health Net, Inc., Health Net of California, Inc.,
Health Net Life Insurance Company, and Managed Health
Network, Inc. (collectively, Health Net). Between 2014 and 2016,
Sovereign submitted claims to Health Net for medical care
provided to more than 400 patients. Health Net paid some
claims but rejected many others. Sovereign, as the patients’
assignee, sued Health Net for breach of contract, insurance bad
faith, and breach of the Employee Retirement Income Security
Act of 1974 (ERISA). Health Net cross-claimed for fraud,
intentional interference with contractual relations, and unfair
competition, among other things.
Prior to trial, the court found that Sovereign had paid
illegal referral fees for more than 300 of Health Net’s insureds in
violation of Insurance Code section 750.1 The court thus granted
1 All subsequent undesignated statutory references are to
the Insurance Code.
2
Health Net’s motions for summary adjudication of Health Net’s
unfair competition claim and several affirmative defenses. A jury
then heard the parties’ legal claims during a seven-week trial,
after which the court determined the parties’ equitable claims.
The jury and the court found for Health Net and against
Sovereign on all causes of action, and the trial court entered
judgment against Sovereign and its owner, Dr. Tonmoy Sharma
(Dr. Sharma), jointly and severally, for more than $24 million,
and against Dr. Sharma individually for more than $31 million.
Sovereign and Dr. Sharma appealed.
As we discuss, Sovereign’s appellate briefs do not discuss
the extensive trial testimony, and thus many of the issues
Sovereign raises are not properly before us. As to other issues,
Sovereign fails to show prejudicial error. We therefore affirm the
judgment in full.
FACTUAL AND PROCEDURAL BACKGROUND
I. The parties and claims.
Plaintiffs and cross-defendants are nine mental health and
substance-use disorder treatment centers and affiliated entities
operated by Sovereign Health Group (collectively, Sovereign)2
2 The individual entities are Dual Diagnosis Treatment
Center, Inc., Satya Health of California, Inc., Adeona Healthcare,
Inc., Sovereign Health of Florida, Inc., Sovereign Health of
Phoenix, Inc., Shreya Health of California, Inc., Shreya Health of
Florida, Inc., Shreya Health of Arizona, Inc., Sovereign Asset
Management, Inc., and Vedanta Laboratories, Inc.
3
and its owner and chief executive officer, Dr. Sharma.
Defendants and cross-complainants are health insurers.3
Between 2014 and 2016, more than 400 patients insured by
Health Net received services at Sovereign’s treatment centers.
Each of those patients assigned to Sovereign their rights under
their Health Net policies to “benefits, insurance proceeds or other
monies . . . due to me for services rendered by [Sovereign],” as
well as “judicial or other rights I may have relating to the
recovery of Benefits.” Pursuant to those assignments, Sovereign
billed Health Net approximately $76 million. Health Net paid
some of the amounts billed, but refused to pay substantial
portions of the bills.
Sovereign filed the present action against Health Net in
2016 as the assignee of the more than 400 Health Net insureds.
In substance, the operative fourth amended complaint
(complaint) alleged that Health Net arbitrarily and in bad faith
failed to reimburse Sovereign approximately $55 million for
services rendered to patients covered by Health Net policies. The
complaint asserted causes of action for breach of contract,
insurance bad faith, and ERISA violations.
Health Net filed an answer generally denying the
complaint’s allegations and asserting 14 affirmative defenses,
including fraud and unclean hands. Health Net also filed a cross-
complaint alleging that it had been the victim of a massive
insurance fraud scheme carried out by Sovereign which involved
recruiting out-of-state patients, unlawfully paying “body brokers”
3 All four Health Net entities are defendants; only Health
Net Life Insurance Company is a cross-complainant. Dr. Sharma
is a cross-defendant, but not a plaintiff. We sometimes refer to
Sovereign and Dr. Sharma collectively as Sovereign.
4
to obtain patients, fraudulently obtaining insurance policies for
those patients, and submitting thousands of false and fraudulent
insurance claims to Health Net. The operative second amended
cross-complaint alleged claims for fraud, intentional interference
with contractual relations, violations of the Unfair Competition
Law (UCL; Bus. & Prof. Code, § 17200 et seq.), and violations of
the Racketeer Influenced and Corrupt Organizations Act (RICO;
18 U.S.C. § 1962(c)).
II. Pretrial rulings.
A. Health Net’s motion for summary adjudication
of the “unlawful” prong of the UCL.
In April 2020, Health Net sought summary adjudication of
its claim that Sovereign violated the “unlawful” prong of the
UCL.4 In support, Health Net asserted that Sovereign procured
more than 300 Health Net insured patients through referrals
from “body brokers” to whom Sovereign paid substantial referral
fees.5 Health Net asserted that paying for patient referrals
violated section 750, which provides that except in circumstances
not relevant here, “any person acting individually or through his
or her employees or agents, who engages in the practice of
processing, presenting, or negotiating claims, including claims
under policies of insurance, and who offers, delivers, receives, or
accepts any rebate, refund, commission, or other consideration,
4 The UCL prohibits unfair competition, including any
“unlawful, unfair or fraudulent act or practice.” (Bus. & Prof.
Code, § 17200.)
5 Health Net asserted that Sovereign paid just one of these
body brokers referral fees exceeding $1.3 million.
5
whether in the form of money or otherwise, as compensation or
inducement to or from any person for the referral or procurement
of clients, cases, patients, or customers, is guilty of a crime.”
Health Net further contended that violations of section 750 are
actionable under the UCL, which borrows violations of other laws
under its “unlawful” prong. (Korea Supply Co. v. Lockheed
Martin Corp. (2003) 29 Cal.4th 1134, 1143.)
Sovereign opposed Health Net’s motion for summary
adjudication. It admitted that it paid consultants for patient
referrals, but contended that the practice was lawful and known
to Health Net. Sovereign also asserted that Health Net lacked
standing to pursue the UCL claims because it was not injured by
Sovereign’s payment of referral fees. Specifically, Sovereign
urged that Health Net did not allege or prove that Sovereign
billed Health Net for referral fees or for any treatment that was
not provided or medically necessary. Sovereign thus urged that
Health Net was not harmed by the payment of referral fees
because it would have been responsible for claims in the same
amounts even if treatment had been rendered by other providers.
The trial court granted Health Net’s motion for summary
adjudication. The court found it uncontroverted that Sovereign
paid third parties referral fees of $2,500 to $7,000 per patient;
that Sovereign submitted claims to Health Net for approximately
300 of these patients; and that Health Net paid substantial sums
to Sovereign for care provided to these patients. The court
further found that Sovereign’s conduct was unlawful under
section 750. Finally, the court found that Health Net had
standing to bring a claim under the UCL because it suffered
injury in fact as a result of Sovereign’s unlawful practices. The
court thus held that Health Net was “entitled to summary
6
adjudication that Sovereign engaged in unlawful practices
through repeated violations of . . . Section 750, causing injury in
fact to Health Net.” The court reserved for trial what the
appropriate remedy was for Sovereign’s unlawful conduct, noting
that “[t]he scale of the injury and the equitable remedy
appropriate under the UCL remain to be decided after trial.”
B. Health Net’s motion for summary adjudication
of Health Net’s affirmative defenses of unclean
hands and fraud.
In March 2021, Health Net moved for summary
adjudication of its affirmative defenses of unclean hands and
fraud, specifically with regard to Sovereign’s breach of contract
and insurance bad faith claims related to the approximately 300
insureds for whom Sovereign paid referral fees (the referred
patients). Health Net asserted that Sovereign acquired the
referred patients by paying unlawful referral fees, and further
that the referral fees “necessarily render[ed] fraudulent every
claim that Sovereign submitted to Health Net for payment for
services relat[ed] to any of th[ese] patients.” Thus, Health Net
urged, Sovereign should be barred from recovering on its claims
for breach of contract and insurance bad faith in connection with
the referred patients.
Sovereign opposed Health Net’s motion. It contended that
Health Net could prevail on its motion only by submitting
evidence relevant to each element of its defenses, which it urged
Health Net had not done and could not do.
The trial court granted Health Net’s summary adjudication
motion. With regard to the affirmative defense of fraud, the court
explained: “It is correct that this court has previously
determined that Sovereign paid referral fees for [the
7
approximately 300] patients[6] at issue in this case in violation of
Section 750 of the Insurance Code . . . . The question presented
then is whether the criminal payment of referral fees constitutes
‘fraud’ . . . so as to present an absolute bar to the plaintiff
recovering any further payment for services rendered to these
patients. . . .
“The court starts with the understanding that California
has a profound and long standing public interest in defeating
insurance fraud. [Citation.] As part of its efforts to root out
insurance fraud, the legislature has clearly expressed its
disapproval of kickback payments by medical providers to those
who refer patients. Section 750 of the Insurance Code
criminalizes payments by medical providers to those who procure
patients for them. Section 1871.7 of the Insurance Code makes it
unlawful to knowingly employ runners, cappers, steerers, and
other persons to procure patients that will be the basis for a
claim against an insurer. The Federal Anti-Kickback Statute
prohibits the payment of referral fees for patients who are
covered by Medicare or Medicaid, making violation of the law
punishable by up to ten years in prison. . . .
“The cases are legion imposing significant penalties on
anyone who pays or receives kickbacks for referring a patient to a
medical provider. [Citations.] [¶] It is against this backdrop
that the court must evaluate [Health Net’s] assertion that the
violation of Section 750 constitutes fraud or unclean hands.
6 The May 7 order referred to 303 patients. Ultimately, the
jury was instructed that Sovereign could not pursue payment for
claims submitted in connection with 320 referred patients.
8
“Ultimately, the court has little difficulty concluding that
the conduct Sovereign engaged in was ‘fraudulent’ for purposes of
the affirmative defense of fraud, in that it was deceptive about
how the patients were securing services from Sovereign and it
was based on conduct expressly made illegal by the California
legislature. Even if the ultimate claim presented to the
insurance company was based on services actually rendered, the
claim has as its foundation a fraudulent act, infecting the entire
claim. . . .
“Moreover, the public policy underlying the prohibition on
payment of kickbacks in this context would be defeated if a
medical provider could obtain its patients through prohibited
means, but then expect to receive full payment for the claims
submitted for those patients. Unless the claims themselves are
disallowed, the evils which the anti-kickback statutes seek to
prevent would continue: the billing for unnecessary or excessive
services and the anti-competitive effect of steering patients for a
fee to one medical provider rather than another one who does not
pay a referral fee. . . .
“In sum, the court finds that all claims submitted on behalf
of patients for whom referral fees were paid are fraudulent in the
inception and so cannot be recovered in this action.”
The court also found that Health Net was entitled to
summary adjudication of its affirmative defense of unclean
hands. The court explained: “The doctrine of unclean hands is a
defense to both legal and equitable actions. [Citation.] ‘The
doctrine demands that a plaintiff act fairly in the matter for
which he seeks a remedy. He must come into court with clean
hands, and keep them clean, or he will be denied relief,
regardless of the merits of his claim.’ [Citation.] Whether the
9
doctrine of unclean hands applies is a question of fact. [Citation.]
It may be decided by the court as with most equitable defenses, or
it may be submitted to the jury if it is sufficiently intertwined
with other legal issues before the jury. [Citation.]
“Not all wrongful conduct constitutes unclean hands. Only
if the misconduct is directly related to the cause at issue can a
defendant invoke the doctrine. [Citations.] The misconduct,
however, ‘need not be a crime or an actionable tort. Any conduct
that violates conscience, or good faith, or other equitable
standards of conduct is sufficient cause to invoke the doctrine.’
[Citations.] ‘Whether the defense applies in particular
circumstances depends on the analogous case law, the nature of
the misconduct, and the relationship of the misconduct to the
claimed injuries.’ [Citation.]
“In the instant case, the court finds that the conduct is
directly related to the issues in this case, that it constitutes
conduct as to which the State of California has expressed strong
approbation[,] and that it would be contrary to public policy to
allow [Sovereign] to recover for services rendered to patients for
whom it paid a substantial referral fee. Accordingly, the court
grants summary adjudication to [Health Net] of its affirmative
defense of unclean hands as to the . . . [referred] patients.”
C. Health Net’s motion for judgment on the
pleadings as to Sovereign’s cause of action for
insurance bad faith.
Health Net filed a motion for judgment on the pleadings as
to Sovereign’s second cause of action for insurance bad faith as to
the patients for whom Sovereign had not paid referral fees.
Health Net urged that a claim for insurance bad faith is
assignable only after the alleged bad faith has occurred. In the
10
present case, however, Sovereign alleged that its former patients
assigned their claims to Sovereign at the time of admission,
before any alleged bad faith could have occurred. Health Net
thus urged that the patients’ assignments of hypothetical bad
faith claims did not give Sovereign standing to sue on the claims.
The trial court granted Health Net’s motion for judgment
on the pleadings in part, ruling that Sovereign could proceed on
its insurance bad faith claim, but could recover only contract
damages if it established the claim at trial. The court explained
that Sovereign “lack[s] standing to assert a tort claim for . . .
insurance bad faith . . . based on its insureds’ assignment,
because the alleged bad faith conduct did not occur until after the
assignment. Accordingly, while [Sovereign] can proceed to seek
contract damages for breach of the implied covenant of good[-
]faith and fair dealing, [it] cannot seek emotional distress,
punitive damages or attorneys’ fees under Brandt [v. Superior
Court (1985) 37 Cal.3d 813].”
III. Trial and judgment.
The court ordered that trial would proceed in two phases.
In phase 1, a jury would decide the parties’ legal claims—namely,
Sovereign’s claims for breach of contract and insurance bad faith,
and Health Net’s cross-claims for fraud, intentional interference
with contractual relations, and RICO violations. In phase 2, the
court would determine the parties’ equitable claims—that is,
Sovereign’s claims for unpaid or underpaid claims based on
11
treatment of patients covered by ERISA,7 and Health Net’s claim
for violations of the UCL.
A. Jury verdict on legal claims.
The parties’ legal claims were tried to a jury over seven
weeks in June and July 2022.8 Sovereign sought payment for
care provided to the approximately 100 non-ERISA patients for
whom referral fees had not been paid, and Health Net sought
reimbursement for payments made to Sovereign for all patients
treated at Sovereign’s facilities.
The jury returned a special verdict in Health Net’s favor on
all issues. Specifically, the jury found that (1) Health Net did not
breach its contracts or engage in bad faith with regard to any of
the insureds for whom Sovereign had an assignment;
(2) Sovereign and Dr. Sharma were liable for fraud and
intentional interference with contract, and acted with malice,
oppression, or fraud; and (3) Dr. Sharma violated RICO. The jury
awarded Health Net damages of $15.82 million for fraud and/or
7 The parties initially agreed that there were 30 ERISA
patients whose claims would be part of the bifurcated trial. By
the time of trial, however, Sovereign was pursuing claims only as
to 11 ERISA patients.
8 The evidence presented at the trial is contained in a 67-
volume reporter’s transcript. Because Sovereign has not
adequately summarized this testimony in its appellate briefs, we
also decline to do so. (See De Meo v. Cooley LLP (2025)
115 Cal.App.5th 17, 41 [appellate court need not “ ‘scour the
record unguided’ ”]; Pulse Technology Consulting Group, Inc. v.
Skowron & Bunning LLP (2025) 108 Cal.App.5th 824, 833
[same].)
12
intentional interference, $13.31 million in interest, and
$15.82 million for RICO violations.
B. Court trial of equitable claims.
After the jury entered its verdict, the court conducted a
bench trial of the parties’ equitable claims—namely, Sovereign’s
cause of action to recover unpaid or underpaid claims based on
treatment provided to the 11 ERISA patients, and Health Net’s
claim for violations of the UCL. At the conclusion of the bench
trial, the trial court found for Health Net on both issues,
explaining in its statement of decision as follows.
Fraud as an affirmative defense to Sovereign’s ERISA
claims. “The jury sitting as the trier of fact on Sovereign’s claims
for breach of contract for the non-ERISA patients and on the
issue of Health Net’s cross-claim for fraud rendered a verdict in
Health Net’s favor . . . . The jury determined that Sovereign
engaged in fraud, and that it acted with malice, oppression or
fraud. It awarded Health Net the entire amount it sought in
damages, indicating that the jury concluded that all of the money
paid by Health Net had been procured through fraud. In other
words, the jury found that fraudulent conduct pervaded the
provision of medical services for the 434 non-ERISA patients,
making none of the services properly reimbursable to Sovereign.
“The question remains what weight to give the jury’s
findings as they relate to the eleven ERISA patients. No
evidence about the ERISA patients’ circumstances, treatment,
reimbursement claims, or medical records was presented to the
jury. Some of the evidence presented to the jury does not directly
relate to the ERISA patients. . . . Because the evidence presented
at trial includes evidence that has no direct bearing on the
treatment received by the ERISA patients, the court concludes
13
that it is not bound by the jury’s decision on the affirmative
defense of fraud.
“Nonetheless, the court finds that Health Net has
presented substantial evidence of fraudulent practices underlying
Sovereign’s entire business model and provision of services . . . .
In order to obtain patients (and thereby expand its operations
and increase profits), Sovereign paid referral fees for 324 of the
patients at issue in this case, over $1.67 million to one referral
source alone . . . . Because of California residency requirements,
Sovereign at Dr. Sharma’s instruction created applications with
false California addresses and instructed employees in
Sovereign’s call center to teach patients either not to respond to
Health Net’s calls for address confirmation or to lie to them.
Defendant Sharma set up a foundation . . . to pay referral fees for
patients and to pay the patients’ insurance premiums, including
to Health Net, while concealing this fact from Health Net. The
Foundation used false addresses for patients and did not disclose
its true purpose to patients or employees. . . .
“Sovereign entities promised patients free treatment, even
though Health Net’s insurance plans required that patients
remain financially responsible for aspects of the treatment.
Sovereign did not collect cost-sharing for 398 out of 434 patients
according to . . . uncontradicted testimony . . . . Although it did
not happen with every patient who testified, there was evidence
that Sovereign required patients to stay a certain number of days
so as to exploit all insurance benefits and would not release them
earlier than that, even if medically appropriate, or conversely,
kicked patients out of the program once their benefits ran out.
There was evidence of repeated patient dumping, whereby
Sovereign would deposit a vulnerable patient far from home
14
without money for travel. Some of those patients had been lured
thousands of miles from their homes to come to Sovereign
facilities in California, with promises of return travel fare which
never materialized. Patients and staff attested to these practices
at trial.
“There was also substantial evidence presented that
Sovereign engaged in repeated instances of billing fraud,
including billing for unnecessary urine tests at exorbitant rates;
making patients look sicker than they actually were; requiring
doctors to pre-sign medical authorization slips or falsifying
standing orders; requiring doctors to sign fake medical records;
and overwriting a doctor’s diagnoses to make it more severe
(justifying longer or additional treatment).
“In addition, there was evidence of the regular falsification
of medical records, primarily by the Sovereign billing team in
India.
“While Health Net did not establish that all of these
practices occurred with respect to all of the patients at issue in
this case, Health Net presented substantial evidence of a pattern
of fraudulent practices by Sovereign designed to attract patients
with false promises; mislead Health Net about whether the
patients qualified by concealing their out-of-state addresses or
that Sovereign was paying their insurance premiums; inflated
bills by ordering unnecessary and repetitive urine tests for
patients regardless of need and billing them at exorbitant rates;
and submitting claims without supporting medical records to
Health Net. By this overarching scheme, Sovereign sought to
obtain large sums of money from Health Net to which Sovereign
was not entitled. This fraudulent scheme infected all aspects of
15
Sovereign’s business, including the provision of services to the
eleven ERISA patients.”
Unclean hands as an affirmative defense to Sovereign’s
ERISA claims. “Health Net also claims that it is entitled to
judgment on the ERISA claims because of the evidence
supporting its ‘unclean hands’ defense. . . . The doctrine of
unclean hands ensures that ‘[n]o one can take advantage of his
own wrong.’ (Civ. Code Section 3517.) The doctrine is an
equitable defense, to be decided by the court, ‘where principles of
fairness dictate that the plaintiff should not recover regardless of
the merits of the claim.’ (Kendall-Jackson Winery, Ltd. v.
Superior Court (1999) 76 Cal.App.4th 970, 985 [(Kendall-
Jackson)].) While the court has broad discretion to apply the
doctrine in appropriate circumstances, ‘the misconduct that
brings the unclean hands doctrine into play must relate directly
[to] the cause at issue.’ [Citation.] Health Net contends that the
evidence of unclean hands here is directly related to the ERISA
claims. It argues that the jury’s finding of fraud was based on
evidence that impacted every aspect of Sovereign’s business—
from recruitment of patients on false pretenses, fabricated
medical orders for drug testing, altered medical records, inflated
billing, and filing of false claims. Having created a business
model based on fraudulent practices, Health Net contends,
Sovereign has come into court with unclean hands.
“Sovereign counters that the only evidence of fraud or
unclean hands before the court related to the 324 [referred
patients], and that neither the court nor the jury has found that
Sovereign engaged in either unfair or fraudulent conduct as to
the other patients. Sovereign makes no other argument against
application of the doctrine. Sovereign does not give proper
16
weight to the jury’s verdict which found fraud and awarded
damages to Health Net for fraud for every patient, not just the
324 who had been purchased. Therefore, there has been a finding
of fraud infecting services to all patients at issue in the trial (in
other words, all patients except the ERISA patients whose claims
had been reserved for later bench trial).
“The court agrees that the overall evidence of fraudulent
practices reveals that Sovereign came to court with unclean
hands, barring all recovery, even for the ERISA patients. The
same evidence set forth above supports this court’s finding of
unclean hands. This would be a more difficult case if the patients
themselves were seeking to recover for services those same
patients had actually been billed and paid for. There is no
evidence here that the patients or the insureds have any
exposure for any of these unpaid bills. While it is true that as the
assignee, Sovereign stands in the shoes of the assignor and
ordinarily would only have to answer to defenses raised against
the assignor, the court sees no reason why the unclean hands
defense cannot be invoked in this unusual situation where the
assignor is blameless, but the assignee comes to court with
unclean hands. This case is no different than if an assignee in
pursuing claims in litigation had willfully destroyed documents;
made serious misrepresentations to the court or intimidated
witnesses. Obviously, such conduct has nothing to do with the
assignor, but would be a basis for the court to invoke the unclean
hands doctrine against the assignee. Assignees do not get a free
ride to engage in improper conduct based on their status as
assignee. Thus, the court concludes that fraudulent conduct
engaged in by Sovereign (assignee) in its dealings with Health
17
Net before and during litigation may be considered for purposes
of applying the unclean hands doctrine.”
Based on the foregoing, the trial court found that Sovereign
could not recover on its ERISA claims.
Health Net’s UCL cross-claims. “Health Net claims that it
is entitled to further equitable relief on its cross-claims for
violations of the [UCL] . . . . It argues that based on this court’s
pre-trial ruling that Sovereign violated Section 750 of the
Insurance Code when it paid referral fees for patients, Health
Net is entitled to judgment on its claim that Sovereign violated
the ‘unlawful’ prong of the UCL as to all ‘purchased patients.’
Health Net argues it should recover as restitution all payments it
made to Sovereign with respect to the 324 ‘purchased patients,’ or
a total of $12.36 million. [¶] Health Net also seeks further
restitution under the UCL for all patients at issue in this lawsuit,
including those for whom referral fees were not paid, and the . . .
ERISA patients whose claims were segregated and set aside for
final determination. Health Net argues that the proven acts of
insurance fraud by Sovereign, committed with malice, oppression
or fraud, constitute unfair and anti-competitive business
practices for all patients, warranting restitution to Health Net of
all amounts paid for 464 patients, or a total of $16.99 million. In
addition, Health Net requests that the court calculate and award
prejudgment interest based on this amount, for an additional
$14.39 million. . . .
“[T]he court finds that as for the 324 purchased patients,
there is undisputed evidence that Sovereign paid substantial
referral fees for these patients, in violation of state law. This
court has already found that such conduct violates Insurance
Code Section 750, as well as the ‘unlawful prong’ of the UCL.
18
In addition, this court has found that ‘but for the referral, Health
Net would not have paid money to Sovereign on behalf of its
insureds.’ The UCL provides that the court may make an order
or judgment that restores ‘to any person an interest in any money
or property, real or personal, which may have been acquired by
means of such unfair competition.’
“This court has no difficulty determining that Sovereign’s
unlawful referral fees constitute unfair competition, since but for
these referral fees, these patients would not have learned about
Sovereign or they might have selected an in-network provider.
By paying illegal referral fees, Sovereign gained an unfair
advantage over its competitors, who did not have patients steered
to them unlawfully.
“State law in related areas prohibits professionals from
keeping moneys obtained for clients for whom they paid illegal
referral fees. [Citations.] [¶] The court finds that Health Net is
entitled to have restored to it under the UCL those moneys it
paid for services provided to these purchased patients, or
$12.36 million. . . .
“With respect to the amounts paid for the patients for
whom no referral fee was paid (which includes the ERISA
patients), the court has set forth above its findings that Sovereign
engaged in an overarching fraudulent scheme in the manner in
which it operated its treatment centers, which pervaded all
aspects of its business. The court finds that such conduct also
constitutes an unfair business practice, separate and apart from
the unlawful payment of referral fees, which gave it an unfair
advantage against its competitors in attracting patients and
billing insurance companies, such as Health Net, for their care.
These fraudulent business practices violated long-standing
19
California public policy against insurance fraud. [Citation.] As
part of its equitable powers under the UCL, this court may order
restitution for all amounts obtained by a defendant who
constructs a fraudulent scheme in order to gain an unfair
advantage over other businesses, including, in this case, an
insurance company facing claims presented as part of that
fraudulent scheme.
“On the issue of reliance, the court further finds that
Health Net presented evidence that it paid the claims submitted
to it by Sovereign on behalf of these patients, because of
Sovereign’s omission of essential facts or material
misrepresentations about its operations. Specifically, Sovereign
omitted to inform Health Net that it was paying the premiums
for many of its patients and waiving any co-pay or co-insurance
requirement in order to induce them into out-of-network
treatment; that it recruited patients from other states and hid
their true addresses to make them appear to be California
residents in order to qualify for Health Net policies; that it had
nonmedical providers altering records; that it at times required
doctors to make patients look sicker than they actually were; that
it regularly used falsified doctor’s notes to justify urinalysis tests;
that it required patients to stay for the full period covered by
Health Net even if not medically advised or against the best
interest of the patient; that it was dumping Health Net’s insureds
in unsafe areas, without the financial means to return to their
homes, when their insurance ran out, jeopardizing their health
and safety; that it was billing for services not actually provided;
that the quality of care was substandard at certain of its
facilities; and that it was advertising amenities that did not exist
to try to recruit Health Net patients away from in-network
20
treatment for more expensive out-of-network care. The court
finds that had this information been provided to Health Net for
any one of these patients, Health Net would not have continued
to pay claims for that patient or other patients seeking treatment
from Sovereign. . . . Thus, Health Net has established
detrimental reliance based on these material omissions and
misrepresentations.
“The court further finds that Health Net has established
that it is entitled to the full amount it paid on behalf of all
patients as restitution with few exceptions. The court finds that
the calculation by [a Health Net expert witness] accurately
describe the total amount to be restored as follows: For the
434 non-ERlSA patients the total damages based on patient level
fraud, billing fraud and laboratory fraud is $15.82 million . . . .
This is the same amount found by the jury. In addition, the court
finds that [Health Net’s expert] calculation of damages for the
. . . ERISA patients [is accurate] . . . . The total amount for the
ERISA patients under this analysis is $1.17 million. The total
restitution amount for all patients is $16.99 million.”
The trial court entered judgment for Health Net and
against Sovereign and Dr. Sharma, jointly and severally, in the
amount of $24,125,800, and against Dr. Sharma individually in
the amount of $31,640,000. Sovereign and Dr. Sharma timely
appealed.
DISCUSSION
Sovereign makes six claims of error on appeal, asserting
that the trial court erred by (1) granting summary adjudication of
the unlawful prong of Health Net’s UCL claim; (2) granting
summary adjudication of Health Net’s fraud and unclean hands
defenses with regard to the referred patients; (3) misinstructing
21
the jury; (4) excluding evidence of correspondence and other
documents exchanged between Health Net and the California
Department of Insurance (CDI); (5) precluding Sovereign from
recovering attorney fees as damages for insurance bad faith; and
(6) granting judgment for Health Net on Sovereign’s ERISA
claim.
Before addressing Sovereign’s specific claims of error, we
note that “[i]n every appeal, the appellant has the duty to fairly
summarize all of the facts in the light most favorable to the
judgment. [Citations.] ‘Further, the burden to provide a fair
summary of the evidence “grows with the complexity of the
record.” ’ ” (Slone v. El Centro Regional Medical Center (2024)
106 Cal.App.5th 1160, 1173.) Thus, appellants “cannot recite
only evidence in their favor, but must ‘ “set forth in their brief all
the material evidence on the point and not merely their own
evidence.” ’ ” (Ibid.) If an appellant fails to provide a fair and
accurate summary of the trial evidence, error may be deemed
forfeited. (Estes v. Eaton Corp. (2020) 51 Cal.App.5th 636, 650.)
The record in this case is lengthy. The evidence presented
at the seven-week trial is contained in a 67-volume reporter’s
transcript, supplemented by a 15-volume appellant’s appendix.
Sovereign’s opening brief does not fairly summarize the trial
testimony, but instead sets forth in a lengthy introduction only
Sovereign’s version of the evidence. Although we will not deem
Sovereign’s appellate arguments forfeited, Sovereign’s failure to
adequately summarize the trial testimony significantly
constrains our appellate review, as we discuss more fully below.
22
I. Sovereign was not prejudiced by the grant of
summary adjudication of the unlawful prong of the
UCL.
Sovereign challenges the trial court’s grant of summary
adjudication of the unlawful prong of Health Net’s UCL claim,
urging that Health Net lacked standing to pursue the claim
because it did not suffer economic injury within the meaning of
the UCL. For the reasons that follow, Sovereign’s contention
lacks merit.
A. Legal standards.
A party is entitled to summary adjudication of a cause of
action or affirmative defense if no genuine issue of material fact
exists and the party is entitled to judgment as a matter of law.
(Bradsbery v. Vicar Operating, Inc. (2025) 110 Cal.App.5th 899,
906–907; Kendall-Jackson, supra, 76 Cal.App.4th at pp. 977–
978.) Our review is de novo. (Kendal-Jackson, at p. 978.)
The UCL prohibits “unfair competition,” which includes
“any unlawful, unfair or fraudulent business act or practice.”
(Bus. & Prof. Code, § 17200; see also Kwikset Corp. v. Superior
Court (2011) 51 Cal.4th 310, 320 (Kwikset).) The UCL “ ‘does not
proscribe specific practices’ ” (Capito v. San Jose Healthcare
System, LP (2024) 17 Cal.5th 273, 283), but instead “ ‘borrows’
violations from other laws by making them independently
actionable as unfair competitive practices” (Korea Supply Co. v.
Lockheed Martin Corp., supra, 29 Cal.4th at p. 1143). “ ‘However,
the law does more than just borrow. The statutory language
referring to “any unlawful, unfair or fraudulent” practice . . .
makes clear that a practice may be deemed unfair even if not
specifically proscribed by some other law.’ ” (Capito, at p. 284.)
23
Thus, “ ‘ “[b]ecause Business and Professions Code section 17200
is written in the disjunctive, it establishes three varieties of
unfair competition—acts or practices which are unlawful, or
unfair, or fraudulent. ‘In other words, a practice is prohibited as
“unfair” or “deceptive” even if not “unlawful” and vice versa.’ ” ’ ”
(Ibid.)
As originally enacted, a suit under the UCL could be
brought by any member of the general public. (Kwikset, supra,
51 Cal.4th at p. 320.) In 2004, UCL’s standing requirements
were revised to grant standing to only those private individuals
who “ha[ve] suffered injury in fact and ha[ve] lost money or
property as a result of the unfair competition.” (Bus. & Prof.
Code, § 17204; Kwikset, at p. 320.)9 In other words, a private
plaintiff “must demonstrate some form of economic injury.”
(Kwikset, at p. 323.) A plaintiff may demonstrate economic injury
in “innumerable ways”: A plaintiff “may (1) surrender in a
transaction more, or acquire in a transaction less, than he or she
otherwise would have; (2) have a present or future property
interest diminished; (3) be deprived of money or property to
which he or she has a cognizable claim; or (4) be required to enter
into a transaction, costing money or property, that would
otherwise have been unnecessary.” (Ibid.)
Importantly, to establish standing under the UCL, a
plaintiff need not establish “a specific measure of the amount of
[its] loss.” (Kwikset, supra, 51 Cal.4th at p. 330, fn. 15.) Instead,
“[i]t suffices that a plaintiff can allege an ‘ “identifiable trifle.” ’ ”
9 Under the amended statute, a UCL action may also be
brought by a state or local prosecutor. (Bus. & Prof. Code,
§ 17204.)
24
(Ibid.) If a party has alleged or proven a personal, individualized
loss of money or property in any “nontrivial amount,” that party
“has also alleged or proven injury in fact.” (Id. at p. 325.)
B. Sovereign has not demonstrated prejudice.
Below, the trial court granted Health Net’s motion for
summary adjudication of the unlawful prong of the UCL after
finding that Sovereign’s payment of referral fees violated
section 750. Sovereign contends this ruling was error because its
payment of referral fees did not cause Health Net any economic
injury. Specifically, Sovereign contends that Health Net did not
provide any evidence in connection with its summary
adjudication motion that Sovereign billed Health Net for the
referral fees or that the care Sovereign provided to Health Net’s
patients was not medically necessary or reasonably priced. As
such, Sovereign urges that Health Net did no more than pay for
medically necessary treatment for its insureds, which it would
have been contractually required to do whether the insureds
obtained treatment at Sovereign’s facilities or elsewhere, and
thus Health Net’s payment of Sovereign’s claims was insufficient
to confer standing.
We need not decide whether the trial court erred in
granting summary adjudication of the unlawful prong of Health
Net’s UCL claim because any error unquestionably was not
prejudicial. “When the trial court commits error in ruling on
matters relating to pleadings, procedures, or other preliminary
matters, reversal can generally be predicated thereon only if the
appellant can show resulting prejudice, and the probability of a
more favorable outcome, at trial.” (Waller v. TJD, Inc. (1993)
12 Cal.App.4th 830, 833.) Thus, error in overruling a demurrer
cannot be relied on to overturn a judgment where the matter
25
proceeded to trial and the evidence supports the judgment. (Id.
at pp. 833–834, and cases cited therein.) Similarly, error in
denying a motion for summary judgment on the ground that
there are no triable issues of material fact is nonprejudicial if the
same questions raised by the motion are decided adversely to the
moving party after a trial on the merits. (Id. at p. 836; Medina v.
St. George Auto Sales, Inc. (2024) 103 Cal.App.5th 1194, 1207;
Federal Deposit Ins. Corp. v. Dintino (2008) 167 Cal.App.4th 333,
343.) And, any error in granting summary adjudication for
defendant of some causes of action is not prejudicial if a jury later
returns a verdict for defendant on overlapping causes of action.
(Wentworth v. Regents of University of California (2024)
105 Cal.App.5th 580, 600 [plaintiff “cannot prove prejudice from
any error in summarily adjudicating [plaintiff’s] claim on theories
that overlap with the theories rejected in the jury’s verdict, which
[plaintiff] does not challenge”].) This is so, courts have explained,
because “ ‘ “[a] decision based on less evidence (i.e., the evidence
presented on the summary judgment motion) should not prevail
over a decision based on more evidence (i.e., the evidence
presented at trial).” ’ ” (Buckner v. Milwaukee Electric Tool Corp.
(2013) 222 Cal.App.4th 522, 539–540.)
In the present case, Sovereign complains that the trial
court should not have granted Health Net’s motion for summary
adjudication because there was no evidence offered in support of
the motion that Health Net would not have been liable for
insurance claims in the same amounts, albeit to other providers,
if Sovereign had not paid the unlawful referral fees. The trial
court acknowledged that possibility when it granted the
summary adjudication motion, but concluded that the
uncertainty was relevant to remedy, not to injury in fact or
26
causation. The court explained: “The evidence establishes that
[the referred patients] obtained services from Sovereign based on
the initial unlawful referral; but for the referral, Health Net
would not have paid money to Sovereign on behalf of its insureds.
While it is true that the same insureds might have obtained
treatment elsewhere and might have submitted even larger bills
for reimbursement, it cannot be [denied] that the payments made
by Health Net to Sovereign would not have occurred but for the
unlawful referral. It will be for the court to determine upon
presentation of evidence what the appropriate equitable remedy
is for this conduct. It is unlikely to be restitution to Health Net of
all amounts paid, especially if Sovereign establishes that the
services complied with industry standards.”
After hearing all the evidence presented at trial, the court
concluded that Sovereign had not complied with industry
standards, but instead had engaged in a variety of unlawful or
fraudulent practices, including submitting claims for out-of-state
residents using false California addresses, requiring patients to
stay at Sovereign facilities longer than was medically appropriate
to exploit all insurance benefits, engaging in repeated instances
of billing fraud, including billing for unnecessary urine tests,
falsifying medical records to make patients look sicker than they
actually were, and advertising amenities that did not exist in
order to recruit Health Net patients away from in-network
treatment for more expensive out-of-network care. Based on
these factors, the court found that Health Net was entitled to
restitution under the “unlawful” prong of the UCL of all the
payments it made on behalf of the referred patients, in the
amount of $12.36 million. In light of this finding, it is apparent
that even if the trial court had not granted summary adjudication
27
on the unlawful prong of the UCL prior to trial, it would have
entered judgment against Sovereign on that prong after trial.
Any error in granting the summary adjudication motion,
therefore, manifestly did not prejudice Sovereign.
Sovereign was not prejudiced by the grant of summary
adjudication for another, independent reason. At the conclusion
of the bench trial, the court not only awarded Health Net
restitution of all payments made in connection with the referred
patients under the unlawful prong of the UCL, it also awarded
Health Net restitution of all amounts paid for all patients—
referred and otherwise—under the “unfair” or “fraudulent”
prongs of the UCL. The court explained that Sovereign had
“engaged in an overarching fraudulent scheme in the manner in
which it operated its treatment centers, which pervaded all
aspects of its business,” and “such conduct . . . constitutes an
unfair business practice, separate and apart from the unlawful
payment of referral fees.” (Italics added.) The court further
concluded that it had equitable powers under the UCL to order
restitution “for all amounts obtained by a defendant who
constructs a fraudulent scheme in order to gain an unfair
advantage over other businesses.” The court exercised its
equitable power in this case to award Health Net restitution in
“the full amount it paid on behalf of all patients.”10 Thus, even
were we to reverse the grant of summary adjudication, the
judgment entered after trial would be the same. For this reason,
also, Sovereign cannot demonstrate that any error in granting
10 The court noted that its award of restitution for the
434 non-ERISA patients was identical to the amount awarded by
the jury.
28
the motion for summary adjudication on the unlawful prong of
the UCL was prejudicial.
II. Sovereign has not demonstrated that the trial court
erred by granting summary adjudication of Health
Net’s unclean hands defense.
As noted above, Health Net sought summary adjudication
of its affirmative defenses of fraud and unclean hands with
regard to Sovereign’s claims that it was entitled to be paid for
medical care provided to the approximately 300 referred patients.
Health Net urged that it was undisputed that Sovereign had paid
referral fees for these patients, and the unlawful payment of
referral fees constituted fraud and unclean hands as a matter of
law. The trial court agreed with Health Net on both counts,
finding that Sovereign’s payment of referral fees constituted
fraud in the inducement and unclean hands, and that each
affirmative defense separately precluded Sovereign from
recovering on claims submitted on behalf of referred patients as a
matter of law.
On appeal, Sovereign challenges the trial court’s summary
adjudication ruling on both grounds, asserting that Health Net
did not establish either fraud in the inducement or unclean
hands. For the reasons discussed below, Sovereign has not
demonstrated error with regard to the grant of summary
adjudication of Health Net’s unclean hands defense. Because
unclean hands was an independent basis for the trial court’s
determination that Sovereign could not recover for claims
submitted on behalf of the referred patients, we need not decide
whether fraud in the inducement also supports that ruling.
29
A. Legal standards.
The defense of unclean hands arises from the maxim,
“ ‘ “ ‘He who comes into Equity must come with clean hands.’ ” ’ ”
(Kendall-Jackson, supra, 76 Cal.App.4th at p. 978, quoting Blain
v. Doctor’s Co. (1990) 222 Cal.App.3d 1048, 1059 (Blain).) “The
doctrine demands that a plaintiff act fairly in the matter for
which he seeks a remedy. He must come into court with clean
hands, and keep them clean, or he will be denied relief,
regardless of the merits of his claim. [Citations.] The defense is
available in legal as well as equitable actions.” (Kendall-Jackson,
at p. 978.)
The wrongful conduct alleged to invoke the unclean hands
doctrine need not be a crime or an actionable tort; instead, “[a]ny
conduct that violates conscience, or good faith, or other equitable
standards of conduct is sufficient cause to invoke the doctrine.”
(Kendall-Jackson, supra, 76 Cal.App.4th at p. 979.) However, the
conduct must relate directly to the cause at issue. (Ibid.) As
Kendall-Jackson explained: “Courts have expressed this
relationship requirement in various ways. The misconduct ‘must
relate directly to the transaction concerning which the complaint
is made, i.e., it must pertain to the very subject matter involved
and affect the equitable relations between the litigants.’
[Citation.] ‘[T]here must be a direct relationship between the
misconduct and the claimed injuries “ ‘. . . so that it would be
inequitable to grant [the requested] relief.’ ” ’ [Citation.] ‘The
issue is not that the plaintiff’s hands are dirty, but rather “ ‘ “that
the manner of dirtying renders inequitable the assertion of such
rights against the defendant.” ’ ” ’ [Citation.] The misconduct
must ‘ “ ‘prejudicially affect . . . the rights of the person against
30
whom the relief is sought so that it would be inequitable to grant
such relief.’ ” ’ ” (Ibid.)
The unclean hands doctrine “is not a legal or technical
defense to be used as a shield against a particular element of a
cause of action. Rather, it is an equitable rationale for refusing a
plaintiff relief where principles of fairness dictate that the
plaintiff should not recover, regardless of the merits of his claim.
It is available to protect the court from having its powers used to
bring about an inequitable result in the litigation before it.
[Citations.] Thus, any evidence of a plaintiff’s unclean hands in
relation to the transaction before the court or which affects the
equitable relations between the litigants in the matter before the
court should be available to enable the court to effect a fair result
in the litigation.” (Kendall-Jackson, supra, 76 Cal.App.4th at
p. 985.)
Whether the doctrine of unclean hands applies generally is
a question of fact. (Peregrine Funding, Inc. v. Sheppard Mullin
Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 681
(Peregrine Funding); CrossTalk Productions, Inc. v. Jacobson
(1998) 65 Cal.App.4th 631, 639.) However, where the facts are
undisputed, a party can prevail on the defense as a matter of law.
(See Peregrine Funding, at pp. 680–681 [where plaintiff’s
pleadings contain factual admissions that establish the basis of
an unclean hands defense, “the defense may be applied without a
further evidentiary hearing”]; see also Dowell v. Biosense
Webster, Inc. (2009) 179 Cal.App.4th 564, 567 [trial court
properly granted summary adjudication of unclean hands
defense].)
31
B. Sovereign has not demonstrated reversible
error as to the unclean hands defense.
Although our review of the summary adjudication ruling is
de novo, the appellant nonetheless has the burden of showing
error, even if it did not bear the burden in the trial court.
(Claudio v. Regents of University of California (2005)
134 Cal.App.4th 224, 230.) In other words, “ ‘[d]e novo review
does not obligate us to cull the record for the benefit of the
appellant in order to attempt to uncover the requisite triable
issues. As with an appeal from any judgment, it is the
appellant’s responsibility to affirmatively demonstrate error and,
therefore, to point out the triable issues the appellant claims are
present by citation to the record and any supporting
authority. . . . [R]eview is limited to issues which have been
adequately raised and briefed.’ (Lewis v. County of Sacramento
(2001) 93 Cal.App.4th 107, 116.)” (Ibid.)
Sovereign’s opening brief on appeal is virtually silent on
the defense of unclean hands. It sets out the elements of unclean
hands in a single sentence, and then asserts without analysis
that the trial court failed to address the elements or equities
required for a finding of unclean hands. Sovereign then
concludes: “Not a single court (other than the trial court here)
has excused a defendant from proving the elements of the
affirmative defense of . . . unclean hands, or barred a plaintiff
from pursuing legitimate claims, based on a finding that the
plaintiff violated Ins. Code, § 750. The statute nowhere states
that a violation constitutes fraud or unclean hands. It simply
cannot be the law that if a provider paid a marketer for a patient,
that patient is not entitled to coverage under her health
insurance policy.”
32
Sovereign’s cursory analysis is inadequate to meet its
appellate burden of demonstrating error. To establish that the
trial court erred by granting summary adjudication on Health
Net’s unclean hands defense, Sovereign has to demonstrate
either that there are triable issues of material fact or that Health
Net was not entitled to summary adjudication as a matter of law.
Sovereign does not contend that there are triable issues of
material fact; to the contrary, it appears to concede that it
violated section 750 by paying substantial referral fees for
approximately 300 patients insured by Health Net. Sovereign
does contend that the undisputed facts did not entitle Health Net
to summary adjudication of its unclean hands defense, but it
focuses almost entirely on supposed flaws in the trial court’s
reasoning. Because our review is de novo, we are concerned with
the correctness of the trial court’s result, not its reasoning, and
will not disturb on appeal “ ‘ “ ‘a ruling or decision, itself correct
in law . . . merely because given for a wrong reason.’ ” ’ ” (People
v. Chism (2014) 58 Cal.4th 1266, 1307, fn. 13; see also A.L. v.
Harbor Developmental Disabilities Foundation (2024)
102 Cal.App.5th 477, 485.) We therefore will address Sovereign’s
contentions only insofar as they suggest an error in the trial
court’s result, not its reasoning.
Sovereign suggests that the trial court “concluded that it
did not have to analyze the elements of the . . . unclean hands
affirmative defense[ ], and admitted that it did not do so.” But
the portion of the record Sovereign cites does not support this
assertion. And, indeed, the trial court’s order granting summary
adjudication makes clear that the trial court did consider the
elements of unclean hands.
33
Sovereign also asserts that the trial court’s unclean hands
finding was in error because, as explained in Blain, supra,
222 Cal.App.3d at page 1060, “ ‘One is not barred from recovery
for an interference with his legally protected interests merely
because at the time of the interference he was committing a tort
or a crime . . . .’ ” While this is a correct statement of law,
Sovereign does not explain how the principle applies in this case,
thus failing to carry its appellate burden. (See, e.g., Hodjat v.
State Farm Mutual Automobile Ins. Co. (2012) 211 Cal.App.4th 1,
10 [“an appellant is required to not only cite to valid legal
authority, but also explain how it applies in his case”], italics
added; Benach v. County of Los Angeles (2007) 149 Cal.App.4th
836, 852 [“When an appellant fails to raise a point, or asserts it
but fails to support it with reasoned argument and citations to
authority, we treat the point as waived”].) In any event,
subsequent cases have expanded on Blain’s analysis, explaining
that “[i]t has long been held that the misconduct asserted in an
unclean hands defense must be sufficiently related to the matter
currently before the court.” (Peregrine Funding, supra,
133 Cal.App.4th at p. 680.) Thus, “[t]he question is whether the
unclean conduct relates directly ‘to the transaction concerning
which the complaint is made,’ i.e., to the ‘subject matter involved’
[citation], and not whether it is part of the basis upon which
liability is being asserted.” (Id. at p. 681.)
Applying this analysis, the Peregrine Funding court held
that the doctrine of unclean hands barred a bankruptcy trustee’s
claims on behalf of an entity used to perpetrate a Ponzi scheme
against a law firm alleged to have helped the scheme’s
perpetrators avoid detection. The court found that although the
entity’s alleged misconduct did not “ ‘directly relate’ ” to its causes
34
of action against the law firm for breaches of the duties of care
and loyalty, the case nonetheless “present[ed] a classic case for
the unclean hands defense.” (Peregrine Funding, supra,
133 Cal.App.4th at p. 681.) The court explained: “In this case,
[the entity and its principal’s] orchestration of the Ponzi scheme
that defrauded investors is intimately related to the professional
malpractice claims before the court. These claims are based
entirely on the assertion that [the law firm’s] professional advice
and tactics enabled [the entity and principal] to perpetuate their
fraud on investors. Moreover, [the entity’s] participation in the
fraud affects the equities between itself and [the law firm]. For
[the entity]—the company plaintiffs allege was controlled by [the
principal] and used by him to operate the Ponzi scheme—to now
complain of [the law firm’s] role in enabling it to commit the
fraud is unfair, and it is precisely this sort of unfairness the
unclean hands doctrine seeks to address. (See Kendall–Jackson
Winery, Ltd. v. Superior Court, supra, 76 Cal.App.4th at p. 985
[explaining the doctrine ‘is an equitable rationale for refusing a
plaintiff relief where principles of fairness dictate that the
plaintiff should not recover, regardless of the merits of his
claim’].)” (Ibid.)
In the present case, Sovereign does not suggest that
unlawful payments of referral fees did not relate to the
“transaction[s]” that formed the basis of its breach of contract
and insurance bad faith claims. Nor could it do so, as the trial
court granted summary adjudication only as to Sovereign’s claims
relating to treatment of the approximately 300 patients for whom
it paid referral fees. As in Peregrine Funding, therefore,
Sovereign’s unlawful payments of referral fees to acquire the
referred patients related directly “ ‘to the transaction concerning
35
which the complaint is made’ ”—that is, to Sovereign’s claims for
payment in connection with medical services rendered to these
same patients. The trial court did not err in so concluding.
Sovereign also suggests that the trial court erred in
granting summary adjudication of Health Net’s unclean hands
defense because Sovereign sued as the assignee of its patients,
who “were not involved in the payment of the referral fees and
did not benefit from those payments.” It therefore argues that
the unclean hands doctrine did not apply because the patients
who had assigned their claims to Health Net did not act
wrongfully. But the patients were not the plaintiffs in this case—
Sovereign was. We echo the trial court’s observation that this
would be a more difficult case if the patients themselves were
seeking to recover for services they had actually been billed and
paid for. Sovereign has not pointed us to any evidence that the
patients have any exposure for any of these unpaid bills, nor has
it cited any authority for the proposition that an unclean hands
defense cannot be asserted against an assignee based on the
assignee’s own unclean hands. Thus, like the trial court, we see
no reason why the unclean hands defense cannot be invoked here,
where the assignors—the patients—are blameless, but the
assignee—Sovereign—comes to court with unclean hands.
For all the foregoing reasons, Sovereign has failed to
demonstrate error with regard to the trial court’s grant of
summary adjudication of Health Net’s affirmative defense of
unclean hands.
III. Sovereign has failed to demonstrate prejudicial
instructional error.
Sovereign next claims that the trial court made several
instructional errors. Specifically, Sovereign urges that the trial
36
court erred by (1) failing to instruct the jury regarding waiver,
(2) instructing the jury that Sovereign violated section 750 by
paying referral fees, (3) instructing the jury that paying
consideration to or on behalf of a patient was a defense to
Sovereign’s breach of contract and insurance bad faith claims,
and (4) instructing the jury that the “maximum allowable
amount” provisions of the insurance policies were ambiguous.
We need not decide whether the trial court’s instructions
were erroneous because Sovereign has failed to demonstrate any
prejudice resulting from the asserted instructional errors.
“ ‘A party is entitled upon request to correct, nonargumentative
instructions on every theory of the case advanced by him which is
supported by substantial evidence.’ ” (I.C. v. Compton Unified
School Dist. (2025) 108 Cal.App.5th 688, 702.) However, “ ‘there
is no rule of automatic reversal or “inherent” prejudice applicable
to any category of civil instructional error.’ ” (McDoniel v. Kavry
Management, LLC (2025) 114 Cal.App.5th 949, 969.) Instead, a
judgment may be reversed based on instructional error only if
“there is a reasonable probability the appealing party would have
obtained a better result absent the error.” (Safeway Wage &
Hour Cases (2019) 43 Cal.App.5th 665, 681; Drury v. Ryan (2025)
109 Cal.App.5th 1102, 1112 [same].)
Prejudice “ ‘must be assessed in the context of the
individual trial record.’ ” (I.C. v. Compton Unified School Dist.,
supra, 108 Cal.App.5th 702.) In Soule v. General Motors Corp.
(1994) 8 Cal.4th 548, 580–581 (Soule), the Supreme Court
identified the factors a reviewing court must consider to evaluate
prejudice in light of the record—namely, “ ‘(1) the state of the
evidence, (2) the effect of other instructions, (3) the effect of
counsel’s arguments, and (4) any indications by the jury itself
37
that it was misled.’ ” (See also I.C., at p. 702.) Where there
“seems little chance the jury was actually misled,” any error is
harmless. (Soule, at pp. 582–583.)
The burden of establishing prejudice as a result of
instructional error lies with the party asserting the error. “An
appellate court’s responsibility to conduct ‘an examination of the
entire cause’ (Cal. Const., art. VI, § 13) is triggered ‘when and
only when the appellant has fulfilled his duty to tender a proper
prejudice argument. Because of the need to consider the
particulars of the given case, rather than the type of error, the
appellant bears the duty of spelling out in his brief exactly how
the error caused a miscarriage of justice.’ [Citation.] These
principles are derived from the axiom that prejudice is not
presumed and the burden is on the appealing party to
demonstrate that prejudice has occurred.” (Adams v. MHC
Colony Park, L.P. (2014) 224 Cal.App.4th 601, 614, italics added.)
In the present case, Sovereign urges that the trial court
erred by giving and failing to give the instructions identified
above, but it does not discuss any of the factors relevant to
prejudice. Specifically, its appellate briefs do not fairly or
adequately discuss the evidence presented at trial, the other
instructions given, or counsels’ arguments. Instead, Sovereign
merely asserts that the damage to its credibility and its case “is
obvious.”
Because Sovereign has not demonstrated prejudice with
regard to the trial record, this court could determine whether
there is a reasonable probability that any instructional error
affected the jury’s verdict only by undertaking an independent
review of the record. We decline to do so. (See, e.g., De Meo v.
Cooley LLP, supra, 115 Cal.App.5th at p. 41 [appellate court need
38
not “ ‘scour the record unguided’ ”]; Morales v. 22nd Dist.
Agricultural Assn. (2016) 1 Cal.App.5th 504, 529 [appellants
failed to demonstrate prejudice where they “provided no
argument concerning” the Soule factors].) We therefore conclude
that Sovereign failed to demonstrate prejudicial instructional
error.
IV. Sovereign has failed to demonstrate that the trial
court prejudicially erred by excluding evidence.
Sovereign contends that the trial court erred by excluding
documents exchanged between Health Net and the CDI between
2017 and 2019. Those documents included correspondence
between Health Net and the CDI, two orders to show cause
(OSCs) issued by the CDI, and a settlement agreement resolving
the orders to show cause. Sovereign urges that the excluded
documents were relevant to issues before the jury—specifically,
whether the reimbursement rate Health Net adopted in 2016 for
out-of-network residential treatment was reasonable. Sovereign
thus contends that the CDI documents should have been
admitted, and the exclusion of the documents prevented
Sovereign from fully and fairly presenting its case to the jury.
We need not decide whether the trial court erred by
excluding the CDI documents because, again, Sovereign has not
met its appellate burden of demonstrating prejudice. “A
judgment will not be set aside based on the erroneous [exclusion]
of evidence unless ‘the reviewing court is convinced after an
examination of the entire case, including the evidence, that it is
reasonably probable a result more favorable to the appellant
would have been reached absent the error.’ ” (Hernandez v.
County of Los Angeles (2014) 226 Cal.App.4th 1599, 1616;
Evid. Code, § 353, subd. (b).) Prejudice “is never presumed but
39
must be affirmatively demonstrated by the appellant.” (Brokopp
v. Ford Motor Co. (1977) 71 Cal.App.3d 841, 853–854.) To meet
this burden, the appellant must show, considering the entire
record, that it is reasonably probable the jury would have reached
a result more favorable to the appellant absent the error.
(Cassim v. Allstate Ins. Co. (2004) 33 Cal.4th 780, 800 (Cassim).)
Sovereign makes only the barest contention of prejudice,
urging that the omission of the CDI documents prevented it from
fully and fairly presenting its case to the jury. But it fails to
demonstrate in light of the entire record—i.e., with reference to
“the entire case, including the evidence adduced, the instructions
delivered to the jury, and the entirety of [counsels’] argument”
(Cassim, supra, 33 Cal.4th at p. 802)—that a different result was
reasonably probable if the alleged error had not occurred. We
therefore cannot conclude any error was prejudicial.
V. Sovereign has failed to demonstrate prejudicial
error with regard to Brandt fees.
Sovereign contends that the trial court erred by ruling that
although Sovereign could pursue an insurance bad faith claim, it
could not recover so-called Brandt fees. Brandt fees are attorney
fees that an insured reasonably and necessarily incurs to obtain
policy benefits that an insurer wrongfully denied. Brandt fees
constitute an economic loss proximately caused by the insurer’s
bad faith denial of insurance benefits and are recoverable as tort
damages, rather than costs. (See Brandt, supra, 37 Cal.3d at
pp. 817–819; Essex Ins. Co. v. Five Star Dye House, Inc. (2006)
38 Cal.4th 1252, 1255.) Sovereign urges that the trial court’s
ruling with regard to Brandt fees is “contrary to law and public
policy” and should be reversed.
40
Again, any error is not prejudicial. As discussed above, the
jury entered a verdict for Health Net on Sovereign’s bad faith
claim—that is, it found that Sovereign did not prove that Health
Net engaged in insurance bad faith. The trial court’s order
limiting Sovereign’s recoverable damages for bad faith, therefore,
did not affect the judgment. (Code Civ. Proc., § 475 [“[n]o
judgment, decision, or decree shall be reversed or affected by
reason of any error, ruling, instruction, or defect, unless it shall
appear from the record that such error, ruling, instruction, or
defect was prejudicial, and also that by reason of such error,
ruling, instruction, or defect, the said party complaining or
appealing sustained and suffered substantial injury, and that a
different result would have been probable if such error, ruling,
instruction, or defect had not occurred or existed”].)
VI. Sovereign has not demonstrated that the trial court
prejudicially erred by granting judgment for Health
Net on Sovereign’s ERISA claims.
Sovereign contends finally that the trial court erred by
granting judgment for Health Net on Sovereign’s ERISA claims.
The claim lacks merit.
As discussed above, the trial court found that Sovereign’s
claims for payment for care rendered to the ERISA patients were
barred by the affirmative defenses of fraud and unclean hands.
Sovereign urges that both rationales “are flawed.” With regard to
fraud, Sovereign contends that “it is a bedrock principle of ERISA
law that a benefit claim administrator cannot deny a claim for
one reason and then argue during litigation that there are other
reasons to deny the claim as well. [Citation.] Likewise, a trial
court is also prevented from using new reasons to uphold the
denial of its claim.” Because Health Net did not inform its
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insureds that it suspected Sovereign of fraud, Sovereign urges
that Health Net waived its fraud defense with regard to the
ERISA patients.
In the trial court, Health Net asserted that Sovereign could
not argue that Health Net waived its fraud defense because
neither Sovereign nor the insureds had exhausted the
administrative appeal process. Health Net noted that some
federal authorities hold that a plan beneficiary (i.e., an insured)
may, by failing to exhaust administrative remedies, waive an
objection to a reason being advanced for the first time in court for
the denial of an ERISA claim. In the present case, it was
undisputed that neither Sovereign nor any of the ERISA patients
took advantage of Health Net’s administrative appeals process.
Accordingly, Health Net urged, Sovereign and the ERISA
patients did not exhaust their administrative remedies and
therefore could not assert the defense of waiver.
Sovereign countered below that it was excused from any
exhaustion requirement because exhaustion would have been
futile. The trial court disagreed, concluding that Sovereign’s
futility argument “founders for want of proof.” The court
explained: “Counsel for Sovereign admitted that the clinics
involved here had not presented a declaration from any of the
11 ERISA patients or from any of the Sovereign entities that they
had considered appealing the denial of benefits but decided not to
institute the process because it would be futile. This missing
evidence is critical . . . . There is no or insufficient evidence
before the court of any effort to engage in the full administrative
process with these eleven patients or to even inquire about an
appeal. Most of the denials or communications to Sovereign from
Health Net regarding the 11 ERISA patients at issue here were
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requests for supporting medical records, licensure documents,
and treating physician’s records reflecting need for treatment.
Little of this information was ever provided to Health Net. It
would be inequitable for Sovereign to refuse to participate in the
administrative process itself and then contend that an appeal
would have been futile. Had Sovereign provided the information
requested, the claim might have been paid in full, or a
subsequent appeal might well have been granted.” Thus, the
court concluded, “Sovereign has waived the right to claim that
Health Net must rely only on the stated reasons set forth in its
denial letters.”
On appeal, Sovereign again asserts that it was not required
to exhaust its administrative remedies because exhaustion would
have been futile. It asserts: “[A]s demonstrated at trial, Health
Net argued throughout that it was not bound by the 75%
reimbursement provision in its benefit plans, and instead it was
allowed to apply a percentage of Medicare rates. . . . Under these
circumstances, continued engagement in the claim and appeal
process was clearly pointless because Health Net never had any
intention, even through litigation, of paying the appropriate
amount on any of the ERISA claims.” (Italics added.)
Sovereign’s exhaustion requirement expressly relies on
Health Net’s trial evidence—specifically, on Health Net’s
contention “throughout . . . trial” that its reimbursement rates
were lawful. But as we have said, Sovereign’s appellate briefs do
not discuss the evidence presented at trial. Sovereign therefore
has not met its appellate burden to demonstrate error. (E.g.,
Julian v. Mission Community Hospital (2017) 11 Cal.App.5th
360, 390, fn. 12 [appellant’s burden to demonstrate error must be
43
“ ‘ “supported by appropriate citations to the material facts in the
record” ’ ”].)
Alternatively, Sovereign contends the trial court erred by
concluding that the doctrine of unclean hands barred Sovereign
from recovering because “the only affirmative defenses [Health
Net] could assert were those that defeated recovery by the
patients.” We have already rejected this argument. (See section
II(B), ante.)
For both of these reasons, Sovereign therefore has failed to
demonstrate that the trial court erred by granting judgment for
Health Net on Sovereign’s ERISA claims.
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DISPOSITION
The judgment is affirmed. Respondents are awarded their
appellate costs.
NOT TO BE PUBLISHED IN THE OFFICIAL
REPORTS
EGERTON, Acting P. J.
We concur:
HANASONO, J.
OCHOA, J.*
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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