Peterson v. Sutter Medical Foundation

Background

Ralph Peterson, a medical doctor licensed in California, sued two groups of defendants: Sutter-related entities and physicians, and members or employees of the Medical Board of California (MBC). Peterson alleged that Sutter used a scheme involving profitable and unprofitable procedures, physician referrals, kickbacks, and medical discipline. He alleged that the defendants punished him between 2009 and 2013 after he would not cooperate, and that the MBC helped through investigations and disciplinary proceedings. He also alleged discrimination against African American doctors and claims under federal civil-rights and antitrust law and California law.

Peterson filed the case in 2021. His amended complaint asserted 17 causes of action, including First Amendment and due-process claims, discrimination claims, federal antitrust claims, a Health Care Quality Improvement Act (HCQIA) retaliation claim, contract and tort claims, a claim under California’s Unfair Competition Law, and a claim under the Unruh Civil Rights Act. The MBC defendants and the Sutter defendants separately moved to dismiss.

MBC Defendants

The court treated the MBC as an intended defendant even though it was not named as a defendant and, according to the record, had not been served. The MBC had appeared and filed a motion without objecting to service or personal jurisdiction. The court held that the MBC, as a state agency, was protected by sovereign immunity, meaning immunity from suit in federal court. It dismissed the claims against the MBC with prejudice.

The court also dismissed with prejudice Peterson’s California-law claims against the MBC defendants in their official and individual capacities. Official-capacity claims generally are treated as claims against the state, and the court held that the exception recognized in Ex parte Young did not apply to these state-law claims. The court further held that 42 U.S.C. § 1983, which allows claims for violations of federal rights by state officials, does not provide a vehicle for bringing state-law claims.

The court dismissed Peterson’s federal claims against the MBC defendants because he had not adequately pleaded an exception to sovereign immunity for official-capacity claims or facts avoiding absolute immunity for individual-capacity damages claims. Absolute immunity protects officials from damages for certain functions closely resembling judicial or prosecutorial functions. The court allowed Peterson to amend so he could identify what each MBC defendant allegedly did and adequately plead why the relevant immunities did not apply.

The court also dismissed Peterson’s antitrust claim against the MBC defendants with leave to amend. The court rejected the defendants’ argument that the alleged conduct was protected by state-action immunity because they had not shown that California clearly adopted a policy approving the alleged anticompetitive conduct. But the court held that the claim appeared time-barred under the antitrust rule requiring suit within four years after injury. Peterson was allowed to amend to plead a basis for delaying or tolling that deadline, including facts supporting a recognized tolling doctrine.

Sutter Defendants

The court held that two of Peterson’s federal civil-rights claims—his First Amendment claim and his due-process claim—could not be dismissed as untimely based solely on the complaint. Peterson plausibly alleged that he could not reasonably have discovered the alleged secret kickback and punishment scheme until November 2019, when reporting about the California Attorney General’s investigation became public. The court also concluded that claim preclusion, which can bar a later case based on an earlier final judgment, did not establish dismissal on the face of the complaint because the newly public information might mean Peterson did not previously have a full and fair opportunity to bring those claims.

The court held that the federal discrimination claims were untimely because those claims accrued when the alleged discriminatory adverse actions occurred, rather than when Peterson later learned that the actions might have been discriminatory. It also held that the federal antitrust claims against the Sutter defendants were time-barred under the antitrust-specific accrual rules. The court dismissed these claims with leave to amend because it could not say that amendment would necessarily be futile.

The court applied California limitations principles to Peterson’s state-law claims. It concluded that Peterson plausibly alleged delayed discovery for claims whose elements depended on learning about the alleged kickback scheme, including breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, intentional infliction of emotional distress, negligent infliction of emotional distress, and the Unfair Competition Law claim. The court did not apply delayed discovery to the intentional-interference, business-disparagement, or Unruh Act claims. Those claims were dismissed with leave to amend.

The court dismissed the HCQIA retaliation claim against all defendants with prejudice. It held that HCQIA establishes standards for professional review of physicians but does not create a private right of action—meaning a right for a private person to sue for a statutory violation of that kind.

The court rejected the Sutter defendants’ argument that Peterson lacked statutory standing under California’s Unfair Competition Law. Although his allegation that the alleged scheme reduced his client pool might ultimately be too speculative or indirect, the court held that it alleged a loss sufficient to defeat the dismissal argument at that stage.

Disposition

The MBC defendants’ motion was granted with prejudice as to the State of California and the MBC and as to the state-law claims against the MBC defendants. It was granted with leave to amend as to the federal claims against the MBC defendants and the antitrust claim. The Sutter defendants’ motion was granted with prejudice on the HCQIA claim, granted with leave to amend on the federal discrimination, Unruh Act, intentional-interference, and business-disparagement claims, and denied in part on the other claims. Judge William H. Orrick entered the order on February 2, 2022.