USC UNIVERSITY HOSPITAL INC v. KAISER FOUNDATION HOSPITALS (2010)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

INTRODUCTION

Kaiser Foundation Hospitals (Kaiser) and the USC University Hospital, Inc. (USC) entered into a series of Letters of Agreement (LOA) regarding USC's provision of lung transplant surgeries to Kaiser members.   This case involves eight LOAs, each of which is identical except for the patient's name.   Each Kaiser patient received a dual cadaveric lung transplant at USC. USC sued Kaiser for breach of contract, contending that Kaiser had not paid the entire amount due under the LOA for the eight surgeries.   Kaiser filed a cross-complaint, alleging that it had overpaid USC and seeking a refund of the overpayment.

In pretrial litigation, the parties framed one issue as whether parol evidence could be offered to demonstrate that the LOA contained a latent ambiguity and to interpret that ambiguity.   The trial court conducted a hearing and provisionally received USC's evidence on the issue but summarily rejected Kaiser's request to present its evidence.   The court ruled the contract was not ambiguous and then, sua sponte, granted judgment to USC. Kaiser appeals.   We reverse, finding that the trial court committed prejudicial error in preventing Kaiser from offering extrinsic evidence about the existence and interpretation of latent ambiguities in the LOA.

FACTUAL AND PROCEDURAL BACKGROUND

1. The LOA

Each LOA includes the following integration clause:  “This letter contains the final and complete agreement between the parties hereto and supersedes any negotiations or representations made previously by one party to another with respect to the subject matter of this Agreement.”  (The parties do not contest that this constitutes a valid and enforceable integration clause.)

Attached to each LOA is the fee schedule for the transplant surgery.¹  The fee schedule, entitled “Exhibit ‘A’ ”, provides for an “All-inclusive case rate” of $120,000 for the first 16 days of a lung transplant patient's hospital stay.   The $120,000 includes the acquisition and provision to the patient of one lung.   If, as here, a patient has a dual transplant, Kaiser is obligated to pay USC “Invoice cost + 10%” on the second lung.   If a patient's stay exceeds 16 days, a stoploss provision calculates Kaiser's financial obligation for the additional period.   Each of the eight patients had a dual cadaveric lung transplant and stayed in the hospital more than 16 days.   The crux of the parties' dispute is the proper calculation of the stoploss amount owed for the additional hospital time.   Footnotes 5 and 7 in the fee schedule address calculation of the stoploss payment.

Footnote 7 provides that in calculating the amount of the stoploss, “[t]he cost of the 2nd organ acquisition for Cadaveric dual transplants and the cost of any living donor organ acquisition costs shall be excluded from the net billed charges and shall not be figured in the accrual toward the overall transplant stoploss threshold.”

Footnote 5 in the fee schedule explains how the stoploss payment is to be calculated.   It reads:

“5. Stoploss shall be calculated as follows:

“Example:  an inpatient admission (Living Related Lung Transplant) with a 20 day length of stay and inpatient charges of $428,000

“Average Daily Billable Charge = $428,000-$28,000 (living organ acquisition) = $400,000 divided by 20 days = $20,000 per day

“Days to be paid at % of charges = 4 (20-16)

“Stoploss amount to be paid = $20,000 x 4 days = $80,000 x 30% = $24,000

“Case Rate to be paid-$120,000

“Living related organ donor cost = $28,000

“Total to be paid for inpatient stay:  $172,000” (Boldface and underlining in original.)

USC billed Kaiser for what it believed to be the full amount due for the eight patients pursuant to the LOA. Kaiser recalculated the amount and paid less than requested (approximately $46,000).

USC filed suit against Kaiser for breach of contract to recover the difference between the amount allegedly due under the LOA and Kaiser's actual payments.   Kaiser filed a cross-complaint for breach of contract, alleging it had “substantially overpaid USC ․ under the terms of the LOA [and was] entitled to a refund of all such overpayments.”

Shortly before trial, the parties filed several motions in limine.   Because these motions set forth each party's theory of the case and framed the subsequent trial court proceedings, we set forth their contents in detail.

2. USC's Motion Based Upon the Parol Evidence Rule

USC filed a motion in limine based upon the parol evidence rule.   USC urged that the LOA was not reasonably susceptible to Kaiser's interpretation and therefore sought to preclude Kaiser from introducing any extrinsic evidence to support its (Kaiser's) interpretation of the contract.

USC explained that it sought $46,523.37 in damages for breach of contract.   According to USC, Kaiser's improper calculation of the stoploss payment was responsible for this shortfall.   USC explained:  “The first step in the Stoploss calculation is to subtract the cost of the second organ from [USC's] billed charges․  [¶] [T]he cost as reflected on the invoice for the cadaveric dual lung for all [eight] patients, except Patient 1, is $40,000.   Therefore, the cost for the second lung is $20,000.   For Patient 1, the cost was $35,904, half of which is $17,952.  [¶] Instead of subtracting the cost of the second lung, Kaiser decided to subtract $64,750 from [USC's] total charges, which is half of [USC's] dual cadaveric lung acquisition charge of $129,500 as set forth on [USC's] bill.   Kaiser simply disregarded the [LOA's] requirement that the cost, not charge, be removed in calculating the Stoploss.   It is clear why the cost is removed (as opposed to the charge) from the way the reimbursement calculation is set up-the cost of the second lung is removed from [USC's] billed charges and is not included in the Stoploss threshold because the second lung is reimbursed separately at its costs plus 10%, which for all but patient 1 is $22,000 ($20,000 cost + $2,000).

“․ [¶]

“The parties intended to use the cost of the second lung and not the charge, which is why the term ‘cost’ is used the reimbursement calculations set forth in the [LOA]. Furthermore, Kaiser was aware of [USC's] charges because they are posted online for review as required by law.   If Kaiser's intent when drafting the Stoploss provision was to subtract out [USC's] charge for the second lung, then appropriate language could have been included.   Rather, the parties agreed the cost of the second lung would be subtracted out and that the [LOA was] final and complete, which bars Kaiser from introducing any parole evidence in this case.  [¶] Nor do these terms require extrinsic evidence to understand their meaning, as they are not reasonably susceptible to interpretation.   The word ‘cost’ is used throughout the [LOA] and Kaiser admits its understanding of ‘cost’ is the same as [USC's]․  Kaiser clearly understands the word ‘cost’ as evidenced by its actions in pricing these claims and therefore admits ‘cost’ is the amount [USC] paid for the lungs.   Similarly, the parties understand ‘charge’ to mean the amount [USC] charges for its services and products provided in treating the patients as evidenced by the [LOA's] references to ‘billed charges.’   Accordingly, [Civil Code section] 1856 prevents Kaiser from introducing any extrinsic evidence to explain or supplement the [LOA].”

Lastly, USC characterized Kaiser's cross-complaint as follows.  “After [USC] initiated this action, Kaiser [advanced a] new theory [that USC's] entire $129,500 charge [for the dual lung acquisition] must be subtracted from its billed charges․  [T]his results in the claims being overpaid, for which Kaiser has counter-claimed against [USC].”

3. USC's Motion in Limine to Exclude Evidence

USC also filed a motion in limine to exclude Kaiser from presenting certain evidence.   USC relied upon the fact that it charges $129,500 for a dual lung acquisition-a charge posted, as required by law, at the website of the Office of Statewide Health and Planning Department (OSHPD) and a charge about which Kaiser was aware-to explain that it “anticipate[d] Kaiser's counsel will attempt to attack the Hospital's charge, in the amount of $129,500, for the dual lung acquisition in numerous ways, including referring to the charge as ․ marked-up from the $40,000 invoice cost, that it is an illegal charge invoking Health & Safety Code § 7150.75 [² ] as its support and/or that the charge is unreasonable or that [USC] double-billed Kaiser.”

USC urged that any evidence proffered by Kaiser to prove those points was irrelevant, confusing and unduly prejudicial.   It argued:  “This case does not involve a dispute about what [USC] can and cannot charge for its services.   Such an argument is not permissible where the parties agreed to use [USC's] published charges as the basis for negotiating a substantial discount off of the total billed charges that Kaiser is responsible to pay when its Members were treated at [USC]. This case does not involve questions of what is reasonable and customary in regards to [USC's] charges.   Any such discussion needed to occur prior to Kaiser agreeing to enter into contracts with [USC]. Similarly, this case does not involve any question of whether or not [USC's] charge is illegal;  nor does Health & Safety Code § 7150.75 apply to [USC], as it is in the business of providing transplant services and charging the reasonable amount to provide those services in accordance with the law.”

4. Kaiser's Opposition to USC's Motion in Limine to Exclude Evidence

Kaiser's opposition to USC's motion in limine to exclude evidence agreed that their dispute centered on calculation of the stoploss payment and, in particular, whether the charge for the dual lung acquisition should be included in or subtracted from the average daily billable charges.   Kaiser gave this analysis of the contract.  “If the patient stayed longer than the first 16 days, the parties agreed to allow USC [to] recoup a portion of its ‘daily hospital stay charges' beyond the first 16 days (called ‘Stop Loss').   A suggested formula was described to determine the net amount billed for ‘daily stay’ charges, to be multiplied by total hospital days over the 16 day threshold.   Only the ‘net billed’ charges were to be used because the purpose was to allow USC to recover[ ] its hospital daily stay costs after the first 16 days.   Hence, the ‘organ acquisition’ charges had nothing to do with hospital stay costs because it is a one time payment item, prior to the transplant itself, in another facility, and not a continuing or recurring cost of hospital stay at [USC's] facility.  [¶] The significant point is that under the LOA contracts, the acquisition charges for both lungs were all paid as a separate charge from the ‘stoploss' hospital stay charges.   What [USC] did was to make a duplicate charge for the organ acquisition in its Stop Loss calculation-instead of subtracting the components which Kaiser separately paid for, USC added the components back into the charge, thereby causing Kaiser to pay twice for the same organ acquisition charge already paid.   No additional charge should have been made because no additional organ acquisition service was provided-in effect, [Kaiser] paid for something [USC] did not provide.”   (Underscoring in original.)

5. Kaiser's Opposition to USC's Motion Based Upon the Parol Evidence Rule

Kaiser filed opposition to USC's motion based upon the parol evidence rule.   Kaiser urged that several exceptions to the parol evidence rule permitted it to offer extrinsic evidence.   In particular, Kaiser relied upon the principle that parol evidence is admissible to explain the meaning of contractual terms even when the contract is plain and unambiguous on its face.   Kaiser urged that the “terms used in [the fee schedule] include several terms requiring clarification, such as ‘Case Rate’, ‘Included’, ‘stoploss', ‘stoploss threshold’, ‘Cost’, and ‘Charge’, and are not defined in the agreement itself.   Examples are given, but they are also in ‘shorthand’ format (e.g., fn. 5 is a demonstration of how to compute stoploss, but it uses a ‘shortened’ formula, leaving out material details and assumptions).   The abbreviated formula has meaning to those who are involved in the industry, and with this contract, but cannot be understood by a lay jury without explanation, and therefore parol evidence is required to give the explanation of how the formula works in a practical sense on a day-to-day basis.   The formula in the example also involves a living donor example, whereas all the transplants involved here involve cadaver donor transplants, and therefore additional explanation will also be required to equate the two.   Hence, parol evidence must be admitted to show what those terms mean in the context of these contracts.”

6. The Hearing

Both parties requested a jury trial.   When the trial court called the case, it stated it had read the parties' motions and had reviewed the LOA. The court indicated that the case involved only interpretation of a contract, the LOA. It stated that it would first rule upon all questions of law, “[a]nd if there's anything left after that time, we'll give it to a jury.”   The parties agreed that the dispute centered upon interpretation of the stoploss provision and the role that the cost or charge for the dual lung acquisition played in computing the stoploss payment.

Kaiser reiterated that it believed a jury would be required because there would be “a material difference of testimony between both sides as to what the parties intended and what the meanings of the terms were to be as they were used in this contract, not in a generic sense, but this contract.”   Because the parties continued to argue their respective interpretations of the LOA, the court told Kaiser:  “When it's your turn, you're going to have to show me where that says that [the charge for the dual lung acquisition must be deducted from the charges before computing the stoploss payment].   I've gone through and read it.   But you show me when it's your turn.  [USC] is going to show me first.   Then you [Kaiser] show me.   Because I'm just interpreting the contract.”   (Italics added.)   At several points during the subsequent hearing, the trial court stated that the first issue to be determined was whether the LOA was ambiguous.

USC presented two witnesses.   The first was Avtar Ahluwalia, the USC director of managed care who negotiated the LOA with Kaiser representative John Howard.   Ahluwalia testified as follows.   The LOA was the result of extensive negotiation.   Kaiser provided the information for the footnotes in the fee schedule, including footnotes five and seven about calculation of the stoploss payment.   The stoploss provision was included to protect USC financially in the event a lung transplant patient stayed beyond 16 days.   Although footnote five uses as an example a surgery involving acquisition of a living lung, the same formula applies to a cadaveric acquisition.

The reference in footnote five to “Average Daily Billable Charge” meant “the total billed charges for that length of stay.”   In that regard, the charge for a particular service is that found on the Charge Description Master (CDM), an on-line website where USC posts its charges for every service it provides.   It is “common knowledge” within the industry that the charges on the CDM form the basis of the hospital's bill.   The charge posted for a dual lung acquisition is $129,500.   As a result, USC charged each of the eight patients $129,500 for the dual lung acquisition and included that amount in its computation of the average daily billable charge to calculate the stoploss payment.

However, Ahluwalia later seemingly contradicted himself on this point in so far as a case involved a live donor.   When asked “[D]o you know how much was included in your example [in footnote five of the LOA] of [$]428,000 for organ acquisition and the live donor situation?”, he replied:  “Yes, zero.   It wasn't included.”   And when asked “whether or not in the live donor situation there is an amount that's included in the [hospital bill that creates the average daily billable charge] as a charge for the live donor acquisition?”, he replied:  “There isn't․  [¶] I don't think there is.”

Lastly, on cross-examination, Ahluwalia conceded what was not expressly stated in the LOA (and what was evident from simply reading the document).   In particular, the LOA did not provide that “in the cadaveric organ situation, ․ USC would be allowed to add into its total costs, its total charged amount, a separate amount for cadaveric organ acquisition”;  footnote five did not state that “the word ‘charge’ means CDM rates not case rates”;  and the fee schedule did not state that USC “can add in [$]129,500 for organ acquisition.”

USC's second witness was Allison Zellien who processed the eight claims on behalf of USC. Her testimony confirmed what USC had billed and what Kaiser had paid.

7. The Trial Court's Ruling

After USC presented its two witnesses, Kaiser orally moved for judgment.   Kaiser claimed there was a “hole” in USC's case.   Kaiser argued:

“If you look at the four corners of the contract, [the LOA], these two components are missing.   There's nothing in that contract specifically with respect to footnote 5 that says charge means CDM rates not case rates.   This is not in the contract.

“Likewise, there is nothing in the contract that says for the purposes of cadaveric organ donations, we are going to add a $129,500 charge to our usual hospital costs.   That is not in footnote 5.

“If footnote 5 does not have anything in it that permits USC to charge an amount higher than the agreed-upon contract prices set forth in the case rates - namely, the 120,000 all-inclusive case rate which includes lung number one organ acquisition and in the separate charge Kaiser paid, invoice plus 10 percent - if there's nothing that permits them to bill more than that in the contract, then they should not be permitted to charge it to Kaiser.

“They have not produced evidence to show that that language or language to that effect is in the contract.   And we submit that's grounds for a ․ motion for judgment [in favor of Kaiser].”

The court responded:

“The Court finds that there are no ambiguities at all in this contract, that there is absolutely no reason for any parol evidence because it's clear․

“[T] he contract provides for average daily billable charge.   And the only -there's only one issue in dispute here, and that's the cadaver donor charge [in the hospital bill] which is what was posted in the CDM on the USC's website along with all the other figures they have there.

“And that's the same charge as they charged in every single one of these cases.   That goes into the computation for the average daily billable charge.   It's clear that the average daily billable charge is the amount of charges that are charged to the patients, and that is used to compute the average daily rate to be multiplied by 30 percent to come with the stoploss threshold.

“And it's clear - and the only dispute is that Kaiser wants to use that CDM rate of [$]129,500 and take half of that for the second transplant and make their calculations that way.   And the contract clearly states that the cost of the second organ acquisition, which is cost plus 10 percent, is to be subtracted from the calculation․

“USC did it according to the contract, invoice cost plus 10 percent.   Kaiser did it by taking one half of the [hospital] charge of [$]129,500.   And that comes up with a difference in each and every case.

“There is no authority under this contract for Kaiser to do what they did.   The language is clear here that you have to use the average daily billable charge and you can only use the invoice cost plus 10 percent․  And all the rates and everything else is clear.   For that reason your motion is denied.   Judgment for [USC].”

Kaiser objected to the court entering judgment for USC before it had had an opportunity to present its case.³  Kaiser explained:  “We're going to put on evidence that the amount of the charge as set forth in the contract should have been the agreed-upon charge.  [¶] ․ We're also going to put on evidence of custom in the industry and practice and Kaiser's actual policy that if anything is charged in a transplant, or in any implant case, in a case rate or in an extra such as the second lung, case rate being the first lung, those items are excluded from the stoploss calculation.   And there's an express written policy on that that conforms with the standard in the industry and practices -” ⁴ (Italics added.)

The court interrupted Kaiser to state:  “I find all that irrelevant.   All of that is irrelevant because I just got through indicating to you that the Court was going to make all interpretations of law, which I've done, in regards to this contract.  [¶] You can't vary the terms of this contract by parol evidence․  If you would have had a question of a fact for the jury, I would have given you a jury trial․  But the point is the Court had to interpret this contract.   And I've interpreted the contract based on the evidence that was presented, and I don't find any ambiguous terms.”  (Italics added.)   Kaiser replied:  “The case law says that even if the Court thinks it's unambiguous, you still have to consider the extrinsic evidence.”   The court responded:  “I don't find any reason to do that.”  (Italics added.)

8. The Trial Court's Statement of Decision

The trial court filed a five-page statement of decision to explain its ruling.   The court recited that it had held “a hearing to determine whether or not there were any questions of fact for the jury to determine” and that Kaiser “contended that the [LOA] was ambiguous.”   The court noted that Kaiser “did not call any witnesses” at the hearing (although USC had called two witnesses) but the court did not acknowledge that it had rejected Kaiser's request to present evidence.   The court stated:  “No ambiguities exist as to the terms and conditions set forth in each [LOA].” It explained that Kaiser had breached the LOA by failing to properly calculate the stoploss payments;  that USC correctly performed the stoploss calculation;  and that the damages USC sought were “supported by the plain meaning of the agreements.”   The court found that Kaiser's efforts to attack the reasonableness or legality of USC's charges were “irrelevant” because the parties had agreed to use USC's published charges.   As for Kaiser's cross-complaint, the court explained that Kaiser had failed to meet its burden of proof because it had not shown that USC had double-charged, made illegal charges or duplicated its charges.   The court granted judgment to USC for $46,523.37 plus interest at 15 percent and costs.

9. Kaiser's Post-Judgment Motions

Kaiser filed two motions to contest the trial court's judgment.   The first was a motion for a new trial or, in the alternative, to reopen the trial to permit Kaiser to present evidence that two provisions in the LOA-“Case Rate” and “Stoploss”-were ambiguous and to construe the meaning of those ambiguous terms.   Kaiser represented that when the trial court had granted judgment to USC, Kaiser had two named witnesses (one of whom was John Howard, the individual who had negotiated the LOA on behalf of Kaiser) in court who were prepared to testify to Kaiser's interpretation of the meaning and intent of the LOA. Kaiser attached as exhibits to its motion two documents summarizing the evidence it would have presented.

Kaiser's second motion sought to vacate the judgment in favor of USC and enter a new judgment in Kaiser's favor.   Primarily, the motion urged that the trial court had committed prejudicial error because it had refused to permit Kaiser to introduce extrinsic evidence about whether the LOA was ambiguous while permitting USC to offer evidence on that issue.

Following a hearing, the court denied both motions.   The court explained that it had not received or used any parol evidence to vary the terms of the contract and that the dispute was simply about the proper calculation of the stoploss formula.   It explained:  “The only question was ․ the billable rate.   And that was the CDM, whatever that was listed there.  [¶] I know you [Kaiser] don't agree with me.   But that's what the contract was, and that's what it provided for.   And I followed the contract.”

DISCUSSION

When, as here, a lawsuit is based upon a written integrated contract, the trial court may not consider extrinsic evidence to vary or contradict the contract's terms.  (Cerritos Valley Bank v. Stirling (2000) 81 Cal.App.4th 1108, 1115-1116.)   However, extrinsic evidence is admissible to demonstrate that a material term of an integrated agreement is ambiguous and to interpret that term.  (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc.   Co. (1968) 69 Cal.2d 33, 37.)   A contractual provision is ambiguous when its language is reasonably susceptible of more than one application to the material facts of the case.  (Dore v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 391.)

“ ‘Where the meaning of the words used in a contract is disputed, the trial court must provisionally receive any proffered extrinsic evidence which is relevant to show whether the contract is reasonably susceptible of a particular meaning.  [Citations.] ․ it is reversible error for a trial court to refuse to consider such extrinsic evidence on the basis of the trial court's own conclusion that the language of the contract appears to be clear and unambiguous on its face.   Even if a contract appears unambiguous on its face, a latent ambiguity may be exposed by extrinsic evidence which reveals more than one possible meaning to which the language of the contract is yet reasonably susceptible.  [Citations.]’ ”  (Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1350-1351.)

To determine whether the contract contains a latent ambiguity, “the trial court engages in a three-step process.   First, it provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible.  [Citations.]  If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract.  [Citation.]  When there is no material conflict in the extrinsic evidence, the trial court interprets the contract as a matter of law.  [Citations.]  This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence [citation] or that extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation.  [Citation.]  If, however, there is a conflict in the extrinsic evidence, the factual conflict is to be resolved by the jury.”   (Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126-1127, fn. omitted.)

Here, the parties' pretrial motions and arguments put in issue application of the parol evidence rule.   In particular, Kaiser indicated that it intended to introduce extrinsic evidence first to show the existence of latent ambiguities in the LOA and then to interpret those ambiguities.   The trial court's remarks made immediately before the hearing began-remarks we have set forth above-indicate that the court contemplated that Kaiser would present evidence to support its position.   The trial court began the required process by provisionally receiving USC's evidence that the contract language was not ambiguous.   However, after hearing only that evidence, the trial court concluded that the contract was not ambiguous and summarily denied Kaiser's request to present evidence to support its claim of contractual ambiguity.   Kaiser's proffer was supported by an offer of proof as to what its evidence would establish-the custom and practice in the industry not to include the cost of transplanted organs in calculating a stoploss payment.   This offer of proof (an offer amplified in Kaiser's new trial motion) was sufficient to preserve the issue for appeal.   When, as here, the trial court has clearly stated it will receive no evidence on a particular issue, the losing party's offer “ ‘may be broad and general.’ ”  (Pacific Gas & Electric Co. v. Zuckerman (1987) 189 Cal.App.3d 1113, 1142.)

The trial court committed reversible error.   As indicated by remarks made throughout the hearing ⁵ as well as its statement of decision,⁶ the court considered USC's evidence in ruling that the LOA was not ambiguous and in sua sponte entering judgment in favor of USC. But the court denied Kaiser the opportunity to put on any contrary evidence.   When a party claims extrinsic evidence will establish a latent ambiguity in a contract, “ ‘rational interpretation requires at least a preliminary consideration of all credible evidence offered to prove the intention of the parties.’  [Citation.]  If, after considering the evidence, the court concludes that it does not support a meaning to which the agreement is reasonably susceptible then the evidence may be rejected.  [Citation.]  But it is reversible error to refuse to consider the evidence based upon a conclusion that the agreement is clear on its face.   [Citation.]  Here the trial court erroneously refused to even provisionally consider [Kaiser's] extrinsic evidence because of its conclusion that the agreement was clear on its face and from that error reversal must follow.”   (Pacific Gas & Electric Co. v. Zuckerman, supra, 189 Cal.App.3d at p. 1141, italics added.)   We therefore reverse the judgment in favor of USC and remand the matter to the trial court to conduct a new hearing in conformity with the procedure set forth in Wolf v. Walt Disney Pictures & Television, supra, 162 Cal.App.4th at pages 1126-1127.

To a certain extent, USC attempts to avoid this conclusion by arguing that the trial court, based upon Kaiser's offer of proof, simply chose to exclude irrelevant evidence and that ruling should be reviewed under the deferential abuse of discretion standard.   We disagree.   A fair reading of the record indicates that the trial court, based solely upon its consideration of USC's evidence, concluded the LOA was not ambiguous and on that basis concluded that any contrary evidence was irrelevant.   As set forth above, that approach is inconsistent with decisional law.  (See also Gordon v. Nissan Motor Co., Ltd. (2009) 170 Cal.App.4th 1103, 1115 [“The erroneous denial of some but not all evidence relating to a claim ․ differs from the erroneous denial of all evidence relating to a claim․  In the former situation, the appellant must show actual prejudice;  in the latter situation, the error is reversible per se.”].)

Because we conclude that the trial court erred in denying Kaiser the opportunity to present evidence about the existence of a latent ambiguity in the LOA, we do not decide the other issues briefed by the parties.   In particular, we need not and, in fact, cannot decide whether the LOA is ambiguous.   The trial court improperly short circuited the process when it concluded, after hearing only USC's evidence, that the contract was not ambiguous.   As a result, the correctness of that ruling is not properly before us.  (Pacific Gas & Electric Co. v. Zuckerman, supra, 189 Cal.App.3d at p. 1143 [“Since extrinsic evidence must be considered before it can be determined whether it supports a meaning to which the agreement is reasonably susceptible, the matter must be remanded so that both [parties] will have the opportunity to produce any evidence they believe supports their interpretation of the [LOA].”].)

In a similar vein, we express no opinion about either the proper method to calculate the stoploss payment or Kaiser's arguments that USC's inclusion of the $129,500 dual lung acquisition charge in the “Average Daily Billable Charge” is unreasonable or illegal.   These are issues to be addressed in the first instance by the trial court after it has conducted a hearing about the admission of extrinsic evidence to interpret the LOA. Lastly, reversal renders it unnecessary to discuss the trial court's decision to sua sponte grant judgment in favor of USC-a decision the basis of which even USC concedes “is unclear”-other than to note the judgment must be reversed because the trial court's ruling precluding Kaiser from presenting any contrary extrinsic evidence was the basis of that judgment.

DISPOSITION

The judgment is reversed.   The matter is remanded for proceedings consistent with the procedure set forth in Wolf v. Walt Disney Pictures & Television, supra, 162 Cal.App.4th at pages 1126-1127:  first, the trial court must provisionally receive extrinsic evidence from both parties to determine whether the language in the LOA is reasonably susceptible of the interpretation urged by the party;  second, if the trial court determines the language in the LOA is reasonably susceptible to the interpretation urged, the extrinsic evidence must be admitted to assist in interpreting the LOA. If there is no material conflict in the extrinsic evidence, the trial court will interpret the LOA as a matter of law.   On the other hand, if there is a material conflict in the extrinsic evidence, a jury will resolve that conflict.   Kaiser is to recover its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

We concur:

FOOTNOTES

FN1. The LOA covers only hospital services.   Physician services are covered by another agreement.   The amounts due for physician services are not an issue in this appeal..  FN1. The LOA covers only hospital services.   Physician services are covered by another agreement.   The amounts due for physician services are not an issue in this appeal.

FN2. Health and Safety Code section 7150.75, which is part of the Uniform Anatomical Gift Act, reads:“(a) Except as otherwise provided in subdivision (b), a person that, for valuable consideration, knowingly purchases or sells a part for transplantation or therapy, if removal of a part from an individual is intended to occur after the individual's death, is guilty of a felony and is subject to a fine not exceeding fifty thousand dollars ($50,000), or imprisonment not exceeding five years, or both the fine and imprisonment.“(b) A person may charge a reasonable amount for the removal, processing, preservation, quality control, storage, transportation, implantation, or disposal of a part.”.  FN2. Health and Safety Code section 7150.75, which is part of the Uniform Anatomical Gift Act, reads:“(a) Except as otherwise provided in subdivision (b), a person that, for valuable consideration, knowingly purchases or sells a part for transplantation or therapy, if removal of a part from an individual is intended to occur after the individual's death, is guilty of a felony and is subject to a fine not exceeding fifty thousand dollars ($50,000), or imprisonment not exceeding five years, or both the fine and imprisonment.“(b) A person may charge a reasonable amount for the removal, processing, preservation, quality control, storage, transportation, implantation, or disposal of a part.”

FN3. USC had not moved for judgment on its complaint.   It had filed two motions for a directed verdict on Kaiser's cross-complaints on issues not relevant to this appeal..  FN3. USC had not moved for judgment on its complaint.   It had filed two motions for a directed verdict on Kaiser's cross-complaints on issues not relevant to this appeal.

FN4. This offer of proof was consistent with Kaiser's statements during the hearing that the contractual ambiguities included whether the LOA permitted application of the CDM rates and how the “average daily billable charge” was to be calculated..  FN4. This offer of proof was consistent with Kaiser's statements during the hearing that the contractual ambiguities included whether the LOA permitted application of the CDM rates and how the “average daily billable charge” was to be calculated.

FN5. Throughout the hearing, the trial court stated its belief that the parties intended the average daily billable charge to be based upon the aggregate of USC's charges as posted on the CDM..  FN5. Throughout the hearing, the trial court stated its belief that the parties intended the average daily billable charge to be based upon the aggregate of USC's charges as posted on the CDM.

FN6. Paragraph 2 of the Statement of Decision reads:  “Prior to entering into the agreements, Kaiser had knowledge of and agreed to [USC's] billed charges as published online ․  One of [USC's] published billed charges on [its CDM] is the dual lung acquisition charge of $129,500.00.”  (Italics added.).  FN6. Paragraph 2 of the Statement of Decision reads:  “Prior to entering into the agreements, Kaiser had knowledge of and agreed to [USC's] billed charges as published online ․  One of [USC's] published billed charges on [its CDM] is the dual lung acquisition charge of $129,500.00.”  (Italics added.)

EPSTEIN, P. J. SUZUKAWA, J.