In 2001, Alexander Zaks M.D. formed several businesses in California’s Central Valley that focused on providing medical treatment to the region’s agricultural workers. Zaks, along with David Holmes D.C. and Daniel Reyes D.C., formed Accident Help Line Medical Group (AHL) at that time. The entities focused on patients with chronic work-related injuries. Zaks also established Millcreek Surgery Center and Alta Surgery Center. Zaks and a partner also owned Reliable Medical Supply, which provided medical equipment. In 2003 Zaks and partners also created Valley Interpreting, a translation service for patients who spoke limited or no English.
Dr. Khan and Dr. Zaks engaged in some cross marketing of their respective services to attorneys representing clients with workers’ compensation issues.
Bruce Roth, then a senior attorney with State Fund, was assigned to defend State Fund against the Zaks Entities’ WCAB liens. Suspecting possible fraud, Roth led an investigation of the Zaks Entities. In January 2006, Roth filed a petition with the WCAB to consolidate the Khan Entities’ and Zaks Entities’ 1,200+ liens against State Fund.
In October 2009, after losing on several issues before the WCAB, Roth settled the consolidated case with the Zaks Defendants without first gaining the approval of his manager at State Fund or State Fund’s claims department. Once Roth’s superiors learned of the settlement they removed Roth from the case, contacted the Zaks Entities, and disavowed the settlement on the basis that Roth lacked authority to enter into it. They forced Roth to resign and referred the case to other attorneys.
State Fund then entered into superseding settlement agreements with the Zaks Entities for substantially the same amount of money as provided for in the 2009 Settlement Memorandum negotiated by Roth. State Fund asserts that it did so in large part out of concern that the WCAB might have enforced the original 2009 Settlement Memorandum between Roth and the Zaks Entities based on Roth’s ostensible authority to bind State Fund. The newer 2010 Settlement Agreement between State Fund and the Zaks Entities released both State Fund and the Zaks Entities from all claims they had against each other up until the time of that agreement.
The State Fund then filed a federal suit for violation of the federal Racketeering and Corrupt Organizations Act (RICO) statute against defendants Alexander Zaks, M.D., Sana Khan, M.D., David Holmes, D.C., and Daniel Reyes, D.C.; their various companies and State Fund’s own former employee, attorney Bruce Roth.
After three years of litigation and extensive discovery, the Zaks Defendants, the Khan Defendants, and Roth filed three separate motions for summary judgment which were granted in March 2016. SCIF appealed the summary judgment to the 9th Circuit Court of Appeal which just affirmed the trial court in the unpublished case of SCIF v Kahn, Zaks et.al.
State Fund’s claims against these Defendants-Appellees were precluded by the broad liability releases contained in the 2010 Settlement Agreements. The district court correctly determined that the releases protected all of these Defendants-Appellees because even State Fund’s claims against the Individual Zaks Defendants were premised on acts within the scope of their agency relationships with lien claimants, such that liability was precluded by the releases’ plain terms.
The court also correctly held that there were no grounds for rescinding the 2010 Settlement Agreements. For fraud to justify rescission, however, it must be extrinsic. Here, there was no extrinsic fraud to justify rescission.