Smith v. Selma Community Hospital (188 Cal. App. 4th 1, 2010)

Opinion

DAWSON, J.

The governing board of Selma Community Hospital (also SCH) terminated the hospital privileges of Brenton R. Smith, M.D., and Smith filed a petition for writ of mandamus seeking to have his hospital privileges reinstated. Smith prevailed in the writ proceeding and also won when the hospital appealed. (Smith v. Selma Community Hospital (2008) 164 Cal.App.4th 1478 [80 Cal.Rptr.3d 745] [superior court’s issuance of writ affirmed].) After the appeal, Smith filed a motion for attorney fees pursuant to Business and Professions Code section 809.9. The trial court denied the motion, and Smith appealed.

Section 809.9 provides that the court shall award attorney fees “to a substantially prevailing party” in a peer review lawsuit “if the other party’s conduct in bringing, defending, or litigating the suit was frivolous, unreasonable, without foundation, or in bad faith.” The parties disagree on (1) the interpretation of section 809.9, (2) the proper application of the opinion in Mir v. Charter Suburban Hospital (1994) 27 Cal.App.4th 1471 [33 Cal.Rptr.2d 243] (Mir), (3) the evidence that is relevant to the determination of bad faith, and (4) whether this court can determine as a matter of law that the hospital’s conduct meets one of the four grounds stated in section 809.9.

We conclude that (1) when the conditions contained in section 809.9 are shown, the prevailing party is entitled to attorney fees—that is, the award of fees is not discretionary; (2) the statutory phrase “frivolous, unreasonable, without foundation, or in bad faith” sets forth separate grounds for an award of attorney fees; (3) the terms “frivolous,” “unreasonable,” and “without foundation” are objective standards that might overlap; (4) the term “bad faith” is a subjective standard concerned with a defendant’s motives for defending or litigating a lawsuit; (5) because a defendant’s subjective state of mind is usually proven by circumstantial evidence, a defendant’s prelitigation conduct and postlitigation conduct are relevant evidence from which inferences can be drawn regarding defendant’s motives in defending or litigating a lawsuit; and (6) this matter will be remanded so the legal standard for bad faith adopted in this opinion can be applied to the evidence relevant to that determination.

BACKGROUND

A fundamental issue in this appeal is the motivation for the conduct of SCH and its affiliates toward Smith. Because motive, which is one aspect of state of mind, usually is shown by circumstantial evidence, we will describe in detail some of the evidence in the record regarding Smith’s relationship with SCH and its affiliates.

Smith is a licensed physician with certified specialties in family practice and emergency room medicine. He moved to Fresno County in 1983 and grew his practice until his corporation owned 12 clinics in the Central Valley. Smith’s clinics compete with clinics owned by Adventist Health System/West in the same area.

In the 1980’s, Smith became a member of the medical staffs of three hospitals, which are now named Selma Community Hospital, Hanford Community Medical Center, and Central Valley General Hospital.

Smith’s conflicts with the parent and affiliates of SCH appear to have begun in October 1999 when Smith planned to open a birthing center in Hanford, California, that would have competed directly with the Hanford hospitals. Around that time, Darwin Remboldt (who Smith believed was the chief executive officer of Central Valley General Hospital and an attorney) summoned Smith to a meeting at Remboldt’s offices. At that meeting, according to Smith, Remboldt was blunt: “Mr. Remboldt informed me that he was not going to allow me to build the birthing center. Mr. Remboldt said to me: ‘Either you become a physician in Kings Health [a Medical Group run by one of (the Hanford) hospitals] or we are going to run you out of town.’ ”

Then, in mid-2000, a representative of the Hanford hospitals approached Smith with an offer to purchase his practice, which Smith declined. After Smith declined the offer, SCH instituted proceedings to terminate his hospital privileges, claiming Smith had an altercation with a nurse in front of a patient and the patient’s family in April 2000. Smith’s attorney sent a private investigator to interview the patient and her family, interviews which had not been conducted by SCH. Smith and his attorney submitted the witness statements to SCH and the hospital withdrew the claim and agreed to purge Smith’s credential/privilege file of all documents related to the matter.

In late 2001, Remboldt approached Smith again about purchasing his practice. By March 2002, Smith and Central Valley General Hospital had entered into a letter of intent for the hospital’s purchase of Smith’s practice and clinics for $8 million. Among other things, the letter of intent provided that Smith would be paid for managing the clinics and consulting with the Hanford hospitals after the purchase and that he could not compete with them.

During the due diligence period specified in the letter of intent, Central Valley General Hospital became concerned with alleged billing irregularities at Smith’s clinics. About this time (late Mar. 2002), a subcommittee of the medical executive committee of the Hanford hospitals convened and was charged with investigating a series of complaints against Smith. The complaints included allegations of unprofessional conduct, disruptive behavior, abuse of staff, falsification of medical records, and substandard patient care. Smith contends these charges were pursued to gain leverage in the purchase of his clinics and thereby eliminate him as a competitor.

On May 31, 2002, Smith met with representatives of Adventist Health about the sale. They demanded changes in the terms of purchase to make them significantly more favorable to Central Valley General Hospital, including the elimination of payments to Smith for management and consulting services and prohibiting Smith from practicing medicine in Fresno and Kings Counties. Smith rejected the offer.

Immediately after the meeting, Adventist Health terminated contracts with Smith for the provision of emergency room and clinic services, which represented over $1 million in revenue to his practice, and a management agreement. Adventist Health also accused Smith of systematic billing fraud.

Also near the time of the meeting, Adventist Health sent Smith a letter accusing him of using foul language in speaking to a nurse in front of a patient. As he did in response to SCH’s accusation in mid-2000, Smith hired an investigator who interviewed the patient who stated the alleged incident never happened. As with the mid-2000 accusation, the hospital had not interviewed the patient about the alleged incident.

On June 26, 2002, Smith attended a meeting with representatives of Adventist Health and its lawyers. They offered to purchase Smith’s practice on the same terms presented to Smith about a month earlier and told him the terms were not negotiable. Again, Smith rejected the offer.

On July 2, 2002, before the discussions concerning the sale of Smith’s clinics were terminated, the Hanford hospitals orally informed Smith that his privileges had been suspended and he had been granted temporary privileges until July 9, 2002.

On Friday, July 5, 2002, according to Smith, he met with Remboldt about the sale of Smith’s clinics. Remboldt mentioned Smith’s retirement, his financial security, recognition of Smith’s contributions to the community, the placement of a plaque to Smith in the nursery of a planned new birthing hospital, job security for Smith’s employees, and the continued operation of the clinics he started. Remboldt also told Smith that Adventist Health had set aside $5 to $7 million to complete the acquisition of his practice. Remboldt told Smith they needed to wrap up the sale and emphasized the need for Smith to call Adventist Health’s representative before the close of business on July 8, 2002, which was the day before the decision was to be made about extending Smith’s privileges. Remboldt told Smith the offer to acquire his practice essentially was a take it or leave it, nonnegotiable offer that would expire on Monday, July 8, 2002.

Smith left the meeting with the belief that the purpose of the meeting had been to force him to sell his practice on the terms offered or face the loss of his privileges. Smith did not intend to sell on those terms and, fearing the loss of his privileges and practice, he instructed his attorney to seek a temporary restraining order.

On July 8, 2002, Smith filed in Kings County a verified complaint for preliminary and permanent injunctive relief that requested the Hanford hospitals be enjoined from terminating or suspending his privileges unless they first afforded him fair procedure rights in accordance with section 809 et seq.

On July 9, 2002, the parties stipulated in open court that, in lieu of obtaining a ruling from the superior court on the merits of the temporary restraining order requested by Smith, the superior court would enter the following order: “The [Hanford] hospitals] will do nothing to revoke, suspend or modify Dr. Smith’s staff privileges prior to September 30, 2002, unless such modification, revocation or suspension is in full compliance with . . . Section 809, et seq.”

After the court hearing, Smith received a letter from the Hanford hospitals questioning the medical care he provided to a patient who had been discharged in January 2000, approximately two and a half years earlier.

Two days after the stipulation was entered, Central Valley General Hospital sued Smith over the sale of the clinics and sought the return of $250,000 delivered to Smith when the letter of intent was executed. (See Central Valley General Hospital v. Smith, supra, 162 Cal.App.4th at p. 510.)

Later in July 2002, Smith attempted to learn the reasons for the allegations regarding his care of the patient discharged in January 2000. His efforts led to a July 30, 2002, telephone conversation between his lawyer and a lawyer representing the medical staff. The declaration of Smith’s attorney described the telephone conversation as including a threat: “Ms. van Hall said to me: ‘Dr. Smith should be careful what he asks for in requesting to know the basis of the charges against him.’ She said when the [medical executive] committee makes charges those charges will be reportable to the National Practitioner Data Bank even if Dr. Smith thereafter sells his practice and later withdraws his application for reappointment. Ms. van Hall told me that if Dr. Smith sells his practice before the [medical executive] committee provides Dr. Smith with the charges that the charges will not be reportable. It was my impression that the phone call from Ms. van Hall was for the purpose of threatening Dr. Smith that if he did not sell his practice to [Adventist Health], they were going to ruin him by taking away his hospital privileges.”

The next day, Smith’s attorney had a telephone conference with attorneys and consultants representing Adventist Health. Again, Smith’s attorney was informed about the timing of the notice of charges and the related reporting obligation. In addition, Ms. van Hall stated: “If [Smith] waits to sell his practice until after the Ad Hoc committee provides [him] with notice of the charges against him, by law, the hospitals would be obligated to report the proposed disciplinary action to the Medical Board of California.”

The referenced ad hoc committee was appointed by the medical executive committee of the consolidated medical staffs of the Hanford hospitals for the purpose of continuing the investigation of Smith. A letter dated August 19, 2002, advised Smith that the ad hoc committee had identified a number of concerns, that he could submit a written response and appear for a personal interview, and that he should submit a written plan of correction to address the problems and deficiencies noted in an enclosure.

Smith sought a temporary restraining order to prevent the Hanford hospitals from limiting or restricting his privileges based on the grounds identified in the August 19, 2002, letter. On September 10, 2002, the superior court filed an order denying Smith’s application for temporary restraining order. The superior court stated it would not enjoin the peer review process and that there were other remedies for the concerns raised by Smith about the process. Despite its denial of Smith’s application, the superior court characterized as “troubling” Central Valley General Hospital’s “using the possibility of loss of hospital privileges as a bargaining chip in its efforts to secure favorable terms for the purchase of the licentiate’s practice . . . .”

Also on September 10, 2002, the medical executive committee of the Hanford hospitals voted to summarily suspend Smith’s privileges. The incidents relied upon for the summary suspension occurred in August 2002 and involved six patient charts.

Smith notified SCH once he learned of his summary suspension at the Hanford hospitals. On September 12, 2002, Stanley Louie, D.O., the chief of staff of SCH, wrote to both Smith and the chief of staff at the Hanford hospitals to request written information explaining the reasons for the suspension.

Smith responded by letter and included the written opinions of two doctors who had reviewed the six patient charts. The Hanford hospitals did not respond to SCH’s request. Based on the information provided and Smith’s practice at SCH, Dr. Louie did not believe that Smith posed an imminent danger to patients at SCH and did not feel the need to investigate or take other action at that point. As a result, SCH took no action to limit Smith’s privileges at SCH, and Smith moved all of his hospital cases to SCH, delivering about 40 babies a month.

In October 2002, the medical executive committee of the Hanford hospitals reviewed the report of the investigation of Smith and voted to continue his summary suspension and to deny his reappointment. The matter then went before the judicial review committee of the Hanford hospitals. Its formal hearing took place over 10 sessions beginning on April 30, 2003, and ending September 28, 2003.

In May 2003, while the judicial review committee proceeding was pending at the Hanford hospitals, Smith applied for reappointment to the medical staff at SCH because his two-year appointment was scheduled to expire.

Dr. Louie testified that, in accordance with its bylaws, SCH conducted a review when it evaluated Smith’s application. The June 12, 2003, minutes of SCH’s medical executive committee included its recommendation that the credentials committee evaluate Smith’s application without information from the Hanford hospitals. As a result, the credentials committee recommended the reappointment of Smith based only on his activity and outcomes at SCH and left open a review of his privileges upon receipt of additional information.

In July 2003, notwithstanding his summary suspension by the Hanford hospitals, SCH notified Smith that the governing board of SCH “ratified the approval of your reappointment to the Active Medical Staff for the next two year period, ending June 25, 2005.”

Meanwhile, the judicial review committee of the Hanford hospitals completed its proceedings. In November 2003, it issued its decision and report on the charges of Smith’s substandard patient care, abusive behavior towards patients and staff, and falsification of records, from January 1, 2000, to August 19, 2002.

The decision and report listed 23 of the 34 instances of alleged substandard care as proven, eight as proven in part, two as not proven and one as proven, but of minimal importance. Seven out of 26 charges of abusive behavior were listed as not proven. Five charges of falsification of records were listed as proven, two were listed as not proven, two were listed as proven with extenuating circumstances, and one was listed as proven but not serious.

Based on these findings, the judicial review committee of the Hanford hospitals found that the summary suspension of Smith and the recommendation that he not be reappointed were reasonable and warranted.

In November 2003, Smith provided SCH with a copy of the decision of the judicial review committee of the Hanford hospitals.

In December 2003, Smith notified SCH that he was going to take a 90-day leave of absence from the medical staff of SCH, starting January 1, 2004. Smith took the leave of absence to help with the lawsuit concerning Central Valley General Hospital’s failed attempt to purchase his practice.

Also in December 2003, Smith appealed the decision of the judicial review committee to the appeal board of the Hanford hospitals. Smith’s ground for appeal was substantial noncompliance with the procedures required by statute and by the bylaws of the medical staff of the Hanford hospitals. Among other things, Smith asserted that an unbiased panel had not presided over the hearing and that he had not been given an opportunity to present all relevant evidence of the matters charged.

On January 27, 2004, the governing board of Hanford Community Medical Center affirmed the decision of the consolidated judicial review committee of the Hanford hospitals. On February 6, 2004, the governing board of Central Valley General Hospital affirmed the same decision. The written decisions of the governing boards were the final peer review decisions of the Hanford hospitals, and both stated they became effective January 28, 2004.

In February 2004, Smith requested reinstatement to SCH’s medical staff with his prior privileges. SCH requested and received from Smith a copy of the governing boards’ final decisions in the Hanford peer review proceeding. Smith also provided SCH with a copy of a letter from his attorney stating that, within the next month, she anticipated filing a petition for writ of mandamus challenging the final administrative decision of the Hanford hospitals’ peer review proceeding.

On March 15, 2004, Smith met with Darrick Wells, M.D., who had replaced Dr. Louie as chief of staff at SCH. Dr. Wells told Smith that his privileges would be summarily suspended if he did not resign his membership or request an additional leave of nine months. After that meeting, Smith sent Dr. Wells a confirming letter, which stated: “You noted that both you and the MEC [medical executive committee] had received legal advice from both MEC attomey(s) and Hospital attorney(s); that the MEC ‘had to’ act on the ‘final’ decision from Hanford and take action.”

The letter is consistent with Dr. Winkelman’s testimony before SCH’s judicial review committee regarding his conversation with Dr. Wells concerning Smith’s privileges: “I was told, very clearly, that hospital counsel or MEC counsel or both, that is the counsel that they—that the MEC was getting advice from, had advised the MEC and Dr. Wells that they were obligated to either suspend Dr. Smith’s privileges or in some other manner prevent him from practicing here, because of the liability associated with having him continue to practice, due to the action taken at Central Valley General Hospital. And this followed the discussion of the fact that Dr. Wells was not aware of any adverse events at Selma District Hospital that was calling his privileges into question.”

Smith did not resign or request another leave of absence. Consequently, on March 23, 2004, SCH’s medical executive committee notified Smith that it had voted to summarily suspend his privileges effective March 27, 2004. Smith sued, challenging the suspension. On April 29, 2004, he obtained a temporary restraining order enjoining SCH from taking any action to suspend, restrict or otherwise impede Smith’s staff membership or privileges at SCH.

On May 5, 2004, SCH’s medical executive committee met with a representative of SCH’s governing board, SCH’s director of administration, and Richard Rawson, the president of SCH, who also was president of the Hanford hospitals. The medical executive committee discussed (1) the temporary restraining order, (2) the trial court’s view that the information presented was insufficient to demonstrate Smith was a potential threat to patients and staff, and (3) the summons regarding Smith’s suit against the hospital for interference with his right to pursue a lawful occupation, intentional interference with prospective business advantage, and unfair competition. SCH’s medical executive committee approved making an offer, contingent upon Smith’s dismissing with prejudice his lawsuit against SCH in its entirety, to (1) rescind Smith’s summary suspension; (2) rescind the recommendation to terminate his medical staff membership and clinical privileges; (3) not use the findings in the Hanford hospitals proceedings as the basis for either future corrective action or denial of reappointment to SCH; (4) base future corrective action against Smith on events occurring after May 5, 2004; and (5) submit corrected reports to the California Medical Board and the National Practitioner Data Bank. Smith did not accept the offer, which he characterizes as a blatant attempt to trade hospital privileges for dismissal of his lawsuit— that is, the use of peer review proceedings as a cudgel to force him to dismiss the suit.

On June 4, 2004, SCH’s medical executive committee voted to rescind the summary suspension, which was no longer in operation because of the temporary restraining order, and continue with the recommendation to terminate Smith’s medical staff membership and clinical privileges. The written notice of charges that SCH’s medical executive committee provided to Smith stated that “the MEC determined that your conduct, as finally determined after extensive hearings at the Hanford hospitals, was reasonably likely to be (1) detrimental to patient safety and to the delivering of quality patient care within the hospital, (2) unethical, (3) contrary to the Medical Staff Bylaws and rules and regulations, and (4) below applicable professional standards.”

The written notice also advised Smith of SCH’s selection of individuals to serve as SCH’s judicial review committee. Smith objected to the four individuals on the ground they had significant economic ties to SCH. The hearing officer, retired Judge Frederic A. Jacobus, subsequently sustained the objections and struck the entire panel. A new judicial review committee was formed with physicians who were associated with the Fresno-Madera Medical Society and were not members of SCH’s medical staff.

The judicial review committee held hearings in February and March 2005 in which each side called witnesses. For example, Dr. Wells testified at the hearing that over the prior year or 11 months he had been reviewing every one of Smith’s charts and admissions to SCH and “[t]here has been no fallout of medical care of those charts to this point.” Dr. Wells also testified that he relied on the final decision of the Hanford hospitals, that he would not dispute the findings, and that he was not concerned about the fairness of the proceeding at the Hanford hospitals.

On March 31, 2005, the judicial review committee issued a written decision in Smith’s favor. It specifically found that the medical executive committee had not proven by a preponderance of the evidence that its recommendation was reasonable and warranted. Consequently, the judicial review committee rejected the action proposed by SCH’s medical executive committee.

The written decision of the judicial review committee discussed the relationship between SCH and the Hanford hospitals, the close relationship between the two Hanford hospitals that terminated Smith’s privileges, the failure of the proposed transaction between Smith and one of the Hanford hospitals for the sale of his practice and 12 clinics, the charges and results of the peer review proceedings at the Hanford hospitals, and SCH’s medical executive committee’s offer to compromise SCH’s peer review proceeding against Smith.

The judicial review committee observed that Smith was reappointed to SCH’s medical staff in June- 2003 (after his suspension by the Hanford hospitals) and that the retrospective peer review of his work at SCH “apparently did not identify his clinical practices as an ‘outlier.’ ” The judicial review committee noted that the interval examined by SCH before reappointing Smith was the interval when the events occurred that were the basis for the findings of the Hanford hospitals. As to matters occurring after Smith was reappointed to SCH’s medical staff in 2003, no outlying outcomes from Smith’s practice at SCH were identified in the testimony presented to the judicial review committee.

The judicial review committee’s decision included an explanation of its conclusion to reject the recommendation of the medical executive committee: “We do not believe SCH Medial [sic] Staff through its MEC and attorney has produced evidence to convince us that the action of Selma Adventist Hospital MEC is reasonable or warranted. We believe that SCH must do their own investigation of Dr. Smith, and follow accepted guidelines such‘as those outlined in the model Medical Staff By-Laws as presented by . . . Jack Rotenberg, MD, and California Medical Association. The information from the Hanford hospitals may be used as a part of a reason to monitor Dr. Smith by accepted peer review mechanisms such as case monitoring, proctoring at surgery and a more intensive review of patients admitted to SCH. After doing their own investigation of Dr. Smith’s performance at SCH, then the experiences at the Hanford hospitals may be used as additional evidence of his need to be dismissed.”

In April 2005, SCH’s medical executive committee appealed the decision of the judicial review committee to the governing board of SCH. The governing board exercised its authority under its bylaws to appoint a committee composed of three members of the governing board to sit as the appeal board.

The appeal board issued a written document that included its conclusions that (1) the judicial review committee’s noncompliance with the procedures required by the bylaws was prejudicial and (2) the judicial review committee’s decision was not supported by substantial evidence. Based on these conclusions, the appeal board ultimately recommended “that the Governing Board of Selma Community Hospital reverse the [judicial review committee] and affirm the MEC’s recommendation to terminate Dr. Smith’s Medical Staff membership and clinical privileges . . . .”

SCH’s governing board agreed with the recommendation and adopted a resolution, effective July 7, 2005, implementing the medical executive committee’s recommendation to terminate the membership and privileges of Smith. On July 25, 2005, Smith filed the petition for writ of mandamus that started the lawsuit involved in this appeal.

In June 2006, the superior court filed a judgment granting a peremptory writ of mandamus. The writ directed SCH to set aside the decision of the appeal board of July 7, 2005, and reinstate the decision of the judicial review committee. (Smith v. Selma Community Hospital, supra, 164 Cal.App.4th at p. 1499.)

On July 12, 2006, SCH filed an appeal. Five days later, it filed a return in the superior court stating it could not comply with the writ because there was no SCH medical staff to which Smith could return. This statement was based on Adventist Health’s reorganization of its hospital subsidiaries and their medical staffs, which had occurred the preceding fall. (Smith v. Adventist Health System/West, supra, 182 Cal.App.4th at p. 732.) After that reorganization, the medical staff of the Hanford hospitals and SCH was a single entity. (Ibid.)

Within a day or two of filing its return, SCH filed a petition for a writ of supersedeas and a request for an immediate stay with this court. The petition misinterpreted the trial court’s decision by asserting it held “that California hospitals may never base termination decisions solely on a physician’s substandard medical care and/or inappropriate behavior at another facility, no matter how egregious.” In August 2006, this court denied the petition for a writ, stating that (1) a party seeking a writ must convincingly show that substantial questions will be raised on appeal and must demonstrate it would suffer irreparable harm outweighing the harm that would be suffered by the other party and (2) SCH had failed to carry its burden.

In mid-August 2006, frustrated by SCH’s failure to comply with the writ of mandate issued by the trial court, Smith sought to regain his privileges at SCH by filing a motion for issuance of an order to show cause regarding contempt. The trial court held two hearings on the motion.

The controversies raised in the hearings included a dispute over the inferences that should be drawn from this court’s denial of SCH’s petition for a writ of supersedeas. SCH argued that the fact Smith was not exercising privileges was the basis for this court’s finding of no imminent harm to it and, therefore, the trial court should not reinstate Smith because that would upset the balance struck by this court. The trial court correctly rejected SCH’s characterization of this court’s order denying the writ.

Besides matters raised at the two hearings, other controversies arose. A week after the second hearing, SCH filed a declaration to support its position that Smith should not be reinstated pursuant to the writ of mandate. The declaration referenced an accusation filed against Smith by the California Medical Board in August 2005 and a criminal investigation conducted by the Attorney General’s Office. SCH asked the court to delay ruling until after the Attorney General’s Office had decided whether to file criminal charges, which SCH represented would occur in late November or the first week of December 2006.

On December 5, 2006, the trial court issued an order that (1) found no contempt, (2) ordered the reinstatement of the judicial review committee’s decision as required by the court’s June 15, 2006, writ, (3) directed that Smith submit an application for consolidated medical staff privileges, and (4) ordered that Smith “shall be permitted to practice on the Consolidated Medical Staff at. . . Selma Community Hospital for a period of one (1) year following the submission of his application, and then must reapply for privileges, as would any other physician practicing there.”

SCH reacted to this order by filing a second petition for writ of supersedeas and a request for an immediate stay. Four days later, on December 19, 2006, this court denied the petition. As a result, Smith resumed practicing at SCH on December 21, 2006. He points out that his reinstatement had been delayed for almost six months.

In July 2008, this court affirmed the trial court’s decision to issue the writ of mandamus, stating: “The governing board’s decision includes several errors of law. It misinterpreted the decision of the judicial review committee, misapplied the collateral estoppel or the exhaustion of remedies doctrine, erroneously decided certain evidence was irrelevant, and misapplied the substantial evidence test.” (Smith v. Selma Community Hospital, supra, 164 Cal.App.4th at p. 1519.)

PROCEEDINGS

In December 2008, Smith filed a motion seeking attorney fees in the amount of $117,837.50.

The motion for attorney fees was heard and taken under advisement on February 4, 2009. On April 10, 2009, the trial court issued its order stating the following: “[Smith’s] Motion for Attorney’s Fees in the amount of $117,837.50 is denied, pursuant to the court’s holding in Mir[, supra,] 27 Cal.App.4th 1471 as the hospital’s position was not frivolous, unreasonable, without foundation, or in bad faith pursuant to . . . section 809.9.” (Original underscoring.)

In May 2009, Smith filed a timely notice of appeal from the order denying his motion for attorney fees.

DISCUSSION

The parties dispute how section 809.9 should be interpreted and applied in this case. Part of this dispute concerns the role that the majority opinion in Mir, supra, 27 Cal.App.4th 1471 should play in the analysis of these questions. We begin our discussion by setting forth the text of section 809.9 and the rules of statutory construction.

I. Statutory Text and Rules of Construction

A. Statutory Text

Section 809.9 provides: “In any suit brought to challenge an action taken or a restriction imposed which is required to be reported pursuant to Section 805, the court shall, at the conclusion of the action, award to a substantially prevailing party the cost of the suit, including a reasonable attorney’s fee, if the other party’s conduct in bringing, defending, or litigating the suit was frivolous, unreasonable, without foundation, or in bad faith. . . . For the purpose of this section, a plaintiff shall not be considered to have substantially prevailed when the plaintiff does not obtain an award of damages or permanent injunctive or declaratory relief.” (Italics added.)

B. Rules of Statutory Construction

Issues of statutory construction are questions of law subject to independent review by the appellate court. (Coburn v. Sievert (2005) 133 Cal.App.4th 1483, 1492 [35 Cal.Rptr.3d 596].) The general principles of statutory construction that guide our independent review have been set forth by this court in a number of opinions. (E.g., id. at pp. 1494—1496; People v. Haynie (2004) 116 Cal.App.4th 1224, 1228-1229 [11 Cal.Rptr.3d 163]; California Teachers Assn. v. Governing Bd. of Hilmar Unified School Dist. (2002) 95 Cal.App.4th 183, 191 [115 Cal.Rptr.2d 323].) Those principles are summarized here.

A reviewing court’s “fundamental task in construing a statute is to ascertain the intent of the lawmakers so as to effectuate the purpose of the statute. [Citation.]” (Day v. City of Fontana (2001) 25 Cal.4th 268, 272 [105 Cal.Rptr.2d 457, 19 P.3d 1196].) This task begins by scrutinizing the actual words of the statute, giving them their usual, ordinary meaning. (Garcia v. McCutchen (1997) 16 Cal.4th 469, 476 [66 Cal.Rptr.2d 319, 940 P.2d 906].)

1. Unambiguous Statutory Language

When statutory language is clear and unambiguous—that is, has only one reasonable construction—courts usually adopt the literal meaning of that language. (Hughes v. Board of Architectural Examiners (1998) 17 Cal.4th 763, 775 [72 Cal.Rptr.2d 624, 952 P.2d 641]; Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [248 Cal.Rptr. 115, 755 P.2d 299].) An exception to this general rule exists for situations where a literal construction would frustrate the purpose of the statute or produce absurd consequences. (Coburn v. Sievert, supra, 133 Cal.App.4th at p. 1495.)

2. Ambiguous Statutory Language

When statutory language is ambiguous, courts must “ ‘ “select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences.” [Citation.]’ ” (Day v. City of Fontana, supra, 25 Cal.4th at p. 272.)

Courts determine the apparent intent of the Legislature by reading the ambiguous language in light of the statutory scheme rather than reading it in isolation. (Lungren v. Deukmejian, supra, 45 Cal.3d at p. 735.) In other words, the ambiguous language must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. (Ibid.) In addition, courts may determine the apparent intent of the Legislature by evaluating the ostensible objects to be achieved by the statute and examining the statute’s legislative history. (Day v. City of Fontana, supra, 25 Cal.4th at p. 272.)

In the present case, the parties have not requested that we examine any legislative history concerning section 809.9.

II. Role of Mir as Precedent

A. Summary o/Mir

In Mir, supra, 27 Cal.App.4th 1471, a hospital’s peer review proceeding resulted in disciplinary action against the physician. (Id. at p. 1476.) The physician filed a petition for mandamus relief, seeking to vacate the disciplinary decision. The trial court granted the writ, determining that there was no substantial evidence to support the disciplinary decision of the hospital. Also applying the substantial evidence test, the appellate court affirmed the decision of the trial court. (Id. at pp. 1476-1477.)

After the appeal of the mandamus proceeding was resolved, the physician filed a motion for attorney fees under section 809.9. (Mir, supra, 27 Cal.App.4th at p. 1477.) The trial court granted the motion, concluding that the hospital had opposed mandamus unreasonably and without foundation. The hospital appealed. (Ibid.)

The appellate court addressed the following issue: Whether a physician who succeeds on mandamus in overturning a disciplinary action by a hospital on the ground of insufficient evidence is necessarily entitled to recover attorney fees under section 809.9. (Mir, supra, 27 Cal.App.4th at p. 1475.) The majority concluded the determination that no substantial evidence supported the hospital’s disciplinary decision did not automatically establish that the hospital’s defense of the mandamus proceeding was unreasonable or without foundation so as to merit an award of attorney fees. Based on this conclusion, the majority reversed the order awarding attorney fees and remanded the matter for a new hearing on the issue whether the hospital’s opposition to mandamus was unreasonable or without foundation. (Id. at pp. 1486-1488.)

B. Contentions of the Parties Here

At the hearing on the motion for attorney fees here, counsel for Smith argued that the judicial review committee’s finding (that SCH’s proposed termination of Smith’s privileges had not been shown to be reasonable and warranted for purposes of § 809.3, subd. (b)(3)) established by res judicata or collateral estoppel that the hospital’s defense of the mandamus proceeding was unreasonable for purposes of section 809.9. Counsel also argued Mir was distinguishable because it involved the lack of substantial evidence to support the disciplinary action.

At the same hearing, counsel for SCH argued Smith’s case was on all fours with Mir, and the trial court was required by Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455 [20 Cal.Rptr. 321, 369 P.2d 937] to follow that precedent. He argued that, in effect, counsel for Smith was asking the trial court to overrule Mir and agree with Justice Croskey’s dissent in that case.

C. Precedential Value o/Mir

The court in Mir decided a narrow legal issue: Whether a court’s decision that a hospital’s disciplinary decision was not supported by substantial evidence automatically results in the conclusion that the hospital’s position was “unreasonable” or “without foundation” for purposes of section 809.9. (Mir, supra, 27 Cal.App.4th at pp. 1475, 1481-1482.) The majority opinion concluded that “[a] finding of insufficient evidence is not tantamount to an affirmative finding the Hospital’s conduct in resisting mandamus was unreasonable or without foundation.” (Id. at p. 1483.)

Here the question presented is different. Smith does not rely on a court determination that the hospital’s disciplinary decision was not supported by substantial evidence. Rather, Smith relies on the determination of the judicial review committee that acted as the trier of fact in the peer review proceeding conducted by SCH. (See Smith v. Selma Community Hospital, supra, 164 Cal.App.4th at p. 1481.) And the determination made by that judicial review committee, as the trier of fact, did not involve the application of the substantial evidence test. Smith relies on the judicial review committee’s determination under section 809.3, subdivision (b)(3): “We do not believe SCH Medical Staff through its MEC and attorney has produced evidence to convince us that the action of Selma Adventist Hospital MEC is reasonable or warranted.” The judicial review committee reiterated its finding on the question of ultimate fact by stating: “In our view, the SCH MEC did not ‘. . . persuade this JRC, by a preponderance of the evidence, that its action or recommendation (summary suspension/removal from the SCH staff) is/was reasonable and warranted.’ ”

Based on our comparison of the determination regarding substantial evidence relied upon by the physician in Mir with the judicial review committee’s determination relied upon by Smith, we conclude that the legal issue presented in this case is not the same as that decided in Mir. A finding regarding the “reasonable and warranted” requirement in section 809.3, subdivision (b)(3) is not the same as a conclusion of law that a disciplinary decision is not supported by substantial evidence. Accordingly, Mir is not binding precedent in this case

Based on our conclusion that Mir is not binding precedent, we further conclude that the question whether the judicial review committee’s finding here entitles Smith to attorney fees under section 809.9, as a matter of law, must be resolved by applying the requirements of the legal doctrine of collateral estoppel. Smith argues the judicial review committee’s finding collaterally estops SCH from asserting that its defense of the mandamus proceeding was reasonable and warranted.

III. Collateral Estoppel and the Judicial Review Committee’s Findings

A. Background and Contentions

The peer review proceeding prosecuted against Smith by SCH was governed in part by section 809.3, subdivision (b)(3), which provides that “the peer review body shall bear the burden of persuading the trier of fact by a preponderance of the evidence that the action or recommendation is reasonable and warranted.” In the Smith matter, the peer review body was SCH’s medical executive committee and the trier of fact was the judicial review committee. Thus, SCH’s medical executive committee had the burden of persuading the judicial review committee that its recommendation to terminate Smith’s privileges was reasonable and warranted.

The judicial review committee specifically found that the medical executive committee had not persuaded it by a preponderance of the evidence that the proposed termination of Smith’s privileges was reasonable and warranted. This is the finding that Smith argues now binds SCH and entitles him to attorney fees as a matter of law. Relying on the doctrine of collateral estoppel, Smith argues: “If SCH’s proposed conduct to terminate Smith’s privileges was unreasonable, then ergo its subsequent conduct in terminating Smith’s privileges despite the [judicial review committee] decision was unreasonable. Likewise, its subsequent defense of its unreasonable conduct in response to Smith’s writ petition was unreasonable or without foundation. Accordingly, Smith is entitled to his attorneys’ fees under Section 809.9, as a matter of law.”

In response, SCH contends that the judicial review committee’s finding cannot bind the trial court in the fee determination because the judicial review committee considered and decided a completely different question.

B. Application of Doctrine of Collateral Estoppel

The doctrine of collateral estoppel applies only if the following elements have been shown: “First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. [Citations.]” (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341 [272 Cal.Rptr. 767, 795 P.2d 1223].)

The doctrine of collateral estoppel is designed to limit “litigation by preventing a party who has had ‘one fair adversary hearing’ on an issue from again drawing it into controversy.” (Heiser, California’s Confusing Collateral Estoppel (Issue Preclusion) Doctrine (1998) 35 San Diego L.Rev. 509, 528.) Three public policies are served by the doctrine—namely, “preservation of the integrity of the judicial system, promotion of judicial economy, and protection of litigants from harassment by vexatious litigation.” (Lucido v. Superior Court, supra, 51 Cal.3d at p. 343.)

In this appeal, the parties dispute whether the identical issue was litigated. The “identical issue” element requires that “ ‘identical factual allegations’ are at stake in the two proceedings, not whether the ultimate issues or dispositions are the same.” (Lucido v. Superior Court, supra, 51 Cal.3d at p. 342.)

We conclude the judicial review committee did not decide the identical issue that was presented to the trial court by Smith’s motion for attorney fees. The issue decided by the judicial review committee was whether it was persuaded by a preponderance of the evidence that the proposal by SCH’s medical executive committee to terminate Smith’s privileges and membership was reasonable and warranted. The issue presented by the motion for attorney fees was whether SCH’s conduct in defending or litigating the mandamus proceeding was unreasonable or without foundation. Although the former issue is intertwined with the latter, they are not identical.

Whether SCH’s conduct in defending or litigating the mandamus suit was reasonable depends in part on the positions it took during the litigation. As these facts did not exist at the time the judicial review committee made its decision, identical factual allegations were not at stake in the two proceedings.

The lack of identity between the issues is further demonstrated by the judicial review committee’s phrasing its finding in terms of what the preponderance of the evidence showed and whether it was persuaded. The issue of whether the medical executive committee carried its burden of persuasion is not the same issue that determines whether SCH was liable for attorney fees.

Accordingly, we reject Smith’s contention that, when the trial court decided his motion for attorney fees, it was required by the judicial review committee’s finding regarding reasonableness to find that SCH’s conduct in defending or litigating Smith’s lawsuit was “unreasonable” for purposes of section 809.9.

IV. Duty or Discretion of the Trial Court

A. Contentions

SCH contends an abuse of discretion standard of review applies to the trial court’s denial of attorney fees. It also contends the trial court’s determinations regarding the factors set forth in section 809.9 are findings of fact that should be reviewed for an abuse of discretion. In contrast, Smith contends the application of section 809.9 in this case is subject to de novo review because the relevant facts are undisputed.

B. Analysis

The question whether section 809.9 grants discretionary authority to award attorney fees is a question of statutory construction. The language in section 809.9 is not ambiguous on the question whether the award of fees is mandatory or discretionary. The Legislature’s use of the phrase “court shall . . . award” in section 809.9 plainly indicates that the trial court is required to award attorney fees when the criteria set forth in the statute are satisfied. (§ 19; see County of Sacramento v. Superior Court (1971) 20 Cal.App.3d 469, 472 [97 Cal.Rptr. 771] [usually “shall” connotes mandatory action and “may” connotes discretionary action].)

SCH has not discussed the Legislature’s use of the word “shall” in section 809.9 and has cited Cummings v. Benco Building Services (1992) 11 Cal.App.4th 1383 [15 Cal.Rptr.2d 53] to support its position that an abuse of discretion standard applies. The Cummings case involved the attorney fees provision in the California Fair Employment and Housing Act (FEHA) (Gov. Code, § 12965). (Cummings, at p. 1386.) That section states “the court, in its discretion, may award to the prevailing party reasonable attorney’s fees and costs . . . .” (Gov. Code, § 12965, subd. (b).) The phrase “in its discretion may” plainly grants discretion to the trial court and easily is distinguished from section 809.9’s mandatory language. Therefore, the court’s conclusion in Cummings that an abuse of discretion standard applied to an attorney fees award under the FEHA has no value as precedent in this case. (See also Code Civ. Proc., § 128.5 [“trial court may order a party” to pay sanctions]; Tenderloin Housing Clinic, Inc. v. Sparks (1992) 8 Cal.App.4th 299, 304 [10 Cal.Rptr.2d 371] [“award of sanctions under [Code Civ. Proc., §] 128.5 is a discretionary act on the part of the trial court”].)

Similarly, the two federal decisions cited by SCH that state a district court’s decision to award attorney fees under the Health Care Quality Improvement Act of 1986 (42 U.S.C. §§ 11101-11152) is reviewed for an abuse of discretion are not persuasive authority for how section 809.9 should be construed. (See Smith v. Ricks (9th Cir. 1994) 31 F.3d 1478, 1487; Johnson v. Nyack Hospital (2d Cir. 1992) 964 F.2d 116, 123.) Those decisions contain no textual analysis of the federal attorney fee provision and fail to acknowledge that the provision, like section 809.9, uses the word “shall.”

Based on the plain language of the statute, we interpret section 809.9 as imposing a mandatory obligation on trial courts to award attorney fees when the criteria set forth in the statute are satisfied. Therefore, we will not review the trial court’s denial of attorney fees under the deferential abuse of discretion standard of review. Instead, we will subject questions of law to an independent review and will review findings of fact under the substantial evidence test, except where those findings can be made as a matter of law.

V. Conduct That Is the Basis for an Award of Attorney Fees

SCH interprets Smith’s attorney fees motion as including conduct that took place prior to and during the peer review process underlying the mandamus action. SCH argues that “Smith is seeking his attorneys’ fees for prosecution of the mandamus action as damages for alleged ‘bad faith peer review.’ But he is in the wrong forum, and using the wrong vehicle.”

SCH made the same argument below. There, SCH also argued that the temporary restraining orders and preliminary injunctions that Smith obtained in other cases established “nothing about the alleged invalidity of [SCH]’s litigation position in this case.” SCH’s written opposition to the section 809.9 motion concluded: “Finally, Smith offers, as ‘evidence’ that [SCH]’s defense of the mandamus petition was frivolous or in bad faith, the fact that ‘at three different stages, adjudicators have expressed concern about economics driving the illegal privileging decisions.’ (Motion at 10:5-15.) But again, if Smith has been subjected to bad faith peer review (and he has not), that is not before this Court. The sole issue before this Court is whether certain litigation conduct of [SCH] is sanctionable within the meaning of Section 809.9.”

Smith replies that section 809.9 applies to more than litigation conduct because its plain terms also apply to the decision to defend the lawsuit. Smith does not argue that he is entitled to recover attorney fees incurred in the peer review proceeding or in other lawsuits against SCH or its affiliates.

The pertinent statutory language states that an award of attorney fees against a defendant is based on the defendant’s “conduct in . . . defending, or litigating the suit. . . .” (§ 809.9.) We conclude that the Legislature’s use of the terms “defending” and “litigating” in tandem demonstrates it was concerned with both the general and the specific. The phrase “conduct in . . . defending” reflects a concern with the broad decision to defend a lawsuit, just as the phrase “conduct in bringing” reflects a concern with the plaintiff’s broad decision to pursue a lawsuit. The phrase “conduct in . . . litigating the suit” indicates a concern with the specific tactical decisions made as the suit proceeds.

In the context of this case and the arguments raised by Smith, we conclude that the phrase “conduct in . . . defending ... the suit” includes SCH’s decision to defend the petition for writ of mandate filed by Smith. Consequently, that decision must be evaluated to determine if it meets any of the four grounds listed in section 809.9. In addition, we conclude that conduct in litigating the suit includes acts taken on specific issues and motions, as well as on postjudgment matters, such as SCH’s claim that it no longer had a medical staff to which Smith could return and its two unsuccessful writs of supersedeas filed with this court. The attorney fees incurred by Smith in connection with such postjudgment matters would be recoverable as part of any fees awarded under section 809.9.

Because of SCH’s arguments about prelitigation conduct, however, we explicitly state that any attorney fees awarded to a plaintiff under section 809.9 must have been incurred by the plaintiff in “the suit” referenced in the statute. Thus, attorney fees incurred by Smith before this suit was filed, or in other matters, cannot be recovered in the section 809.9 motion he filed in this case. At the same time, this conclusion does not mean that SCH’s conduct outside the suit does not constitute evidence relevant to the application of section 809.9 in this case. SCH’s argument about relevancy will be addressed in part VI.F.5., post.

VI. Meaning of the Statutory Phrase “Frivolous, Unreasonable, Without Foundation, or in Bad Faith”

Before applying section 809.9 to SCH’s conduct in defending or litigating the mandamus proceeding and determining whether Smith is entitled to a fee award, we first determine the meaning of the applicable statutory terms.

Section 809.9 requires an award of attorney fees where the losing defendant’s conduct in defending or litigating the suit “was frivolous, unreasonable, without foundation, or in bad faith.”

A. The Four Grounds for an Award Are Separate

Smith contends that section 809.9 requires “the court to award attorneys’ fees to the substantially prevailing party under four alternative grounds . . . .” Based on the statute’s use of the disjunctive “or,” Smith argues that “[ejach alternative ground represents a separate category for an award . . . .”

The plain and ordinary meaning of the word “or” is well established. When used in a statute, the word “or” indicates an intention to designate separate, disjunctive categories. (White v. County of Sacramento (1982) 31 Cal.3d 676, 680 [183 Cal.Rptr. 520, 646 P.2d 191]; see Kobzoff v. Los Angeles County Harbor/UCLA Medical Center (1998) 19 Cal.4th 851, 861 [80 Cal.Rptr.2d 803, 968 P.2d 514] [“or” is disjunctive].) Therefore, the use of “or” in section 809.9 means that an award of attorney fees to a substantially prevailing party is required if any one of the four grounds listed is shown.

B. Overview of the Four Grounds and Their Relationship to One Another

The four criteria for an award of fees listed in section 809.9 are not defined by the statute. They are general terms subject to a variety of interpretations, which range from narrow to broad. Because of the lack of statutory definitions and the inherent ambiguity of the four terms, it is difficult to determine precisely where one term ends and another term begins and what overlap, if any, exists among them.

This set of circumstances leads us to draw two pragmatic inferences regarding legislative intent. First, the Legislature used the four terms together and connected them with the disjunctive “or” to avoid any single term being interpreted too narrowly. Thus, from a practical point of view, the scope of a particular term is not as important as the scope of the statute. For example, whether a particular position is characterized as unreasonable, without foundation, or both is not as important as whether that position falls within the scope of section 809.9. (See the last paragraph of pt. VI.D., post.)

Second, the Legislature intended to impose liability for attorney fees if the relevant conduct was either qualitatively deficient under an objective standard or inappropriate under a subjective standard. This point is discussed further in part VI.F., post, which concerns the ground of bad faith.

C. Without Foundation

In scrutinizing the words of a statute, courts generally give them their usual, ordinary meaning, which in turn may be obtained by referring to a dictionary. (Garcia v. McCutchen, supra, 16 Cal.4th at p. 476; Wal-Mart Stores, Inc. v. City of Turlock (2006) 138 Cal.App.4th 273, 294 [41 Cal.Rptr.3d 420].) Webster’s Third New International Dictionary (1986) page 898 defines “foundation” to mean “the basis on which something is founded: the basis upon which something stands or is supported . . . .” Thus, we interpret the term “without foundation” as meaning baseless, groundless, or without support. (See Cummings v. Benco Building Services, supra, 11 Cal.App.4th at p. 1387 [quoting a case that treated the terms “meritless,” “groundless” and “without foundation” as synonyms].)

Notwithstanding this definition, the term “without foundation” remains ambiguous because there are different types of foundations for the positions a party takes in defending and litigating a suit. At its most fundamental level, a party’s conduct in litigating a suit involves assertions of fact and contentions of law, which lead to further conduct—the party’s arguments regarding the application of law to the facts. We will assume for purposes of this appeal that the term “without foundation” refers to both the factual and the legal bases for the positions taken by a party.

The foundation for an assertion of fact is evidence, which can be either direct or circumstantial. (CACI No. 202.) Thus, a party that asserts a fact without direct or circumstantial evidence to support it has engaged in conduct that is “without foundation” for purposes of section 809.9.

The foundation for a contention of law is legal authority such as a statute, regulation, or case law. (See Finnie v. Town of Tiburon (1988) 199 Cal.App.3d 1, 12-15 [244 Cal.Rptr. 581] [in applying Code Civ. Proc., § 128.5, court discussed separately lack of legal grounds and want of evidentiary showing].) Therefore, a party that takes a legal position without supporting authority, either direct or indirect, has engaged in conduct that is “without foundation.”

Whether evidence is present in the record to support a factuál assertion and whether authority has been presented to support a legal position are questions that both trial and appellate courts handle routinely in administering their caseload. The record of the proceeding will contain a party’s (1) factual assertions and references to the evidence that supports those assertions and (2) legal positions and the authority cited to support those positions. Based on the nature of the inquiry and the record available, the existence of supporting evidence and authority can be determined as a matter of objective fact. Accordingly, we conclude that the question whether a party’s conduct in litigating a suit was “without foundation” is an issue that the courts must decide as a matter of law under an objective test. As such, the issue is subject to independent review on appeal. (Cf. Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242, 1274 [78 Cal.Rptr.3d 372] [application of objective test of reasonableness was subject to independent review on appeal].)

D. Unreasonable

The edition of Black’s Law Dictionary that was current when section 809.9 was enacted defines “unreasonable” to mean “[n]ot reasonable” and “[irrational.” (Black’s Law Dict. (5th ed. 1979) p. 1379.) Its definition of “reasonable” provides in part: “Having the faculty of reason; rational; governed by reason; under the influence of reason; agreeable to reason. Thinking, speaking, or acting according to th