Warren-Guthrie v. Health Net

court relied on Prudential Property & Casualty Ins. Co. v. Superior Court (1995) 36 Cal.App.4th 275 [ 42 Cal.Rptr.2d 227 ] and Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332 [ 79 Cal.Rptr.2d 308 , 965 P.2d 1178 ], in which the California Court of Appeal and the California Supreme Court ruled that, despite the existence of an uninsured motorist provision requiring binding arbitration, under section 1281.2, the trial court had the authority to stay arbitration or order consolidation of the arbitration and civil action to avoid the possibility of conflicting rulings.

Section 1281.2(c) “generally authorizes a trial court to consolidate, that is, to ‘order intervention or joinder of all parties in a single action or special proceeding ... as to all or only certain issues’ (id., foll. subd. (c)), if it determines that a ‘party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact’ (id., subd. (c)).” (Mercury Ins. Group v. Superior Court, supra, 19 Cal.4th at p. 345.)

In Prudential Property & Casualty Ins. Co. v. Superior Court, supra, 36 Cal.App.4th 275 , the plaintiffs were in two car accidents, which occurred on separate occasions, within several weeks of each other. The plaintiffs were unable to determine which accident caused the plaintiffs’ injuries. The plaintiffs filed a civil action against the driver who rear-ended the plaintiffs’ vehicle in the first accident, and brought an uninsured motorist claim as to the second accident. The plaintiffs’ automobile insurer, Prudential, petitioned to compel joinder of the uninsured motorist arbitration proceeding and the civil action under section 1281.2(c). The trial court granted the petition on the ground that separate proceedings might result in inconsistent rulings regarding the two drivers’ comparative fault. (Prudential, supra, at pp. 277, 279.)

The Prudential court affirmed the trial court ruling, noting that “Section 1281.2(c) specifically gives the superior court the authority to order joinder of an arbitration proceeding and a civil action to avoid the possibility of conflicting rulings. . . . [W]e perceive no legislative intent to abrogate the overarching power of the superior court to stay or join arbitration in its discretion under the various conditions set forth in section 1281.2, including the potential of inconsistent rulings.” (Prudential Property & Casualty Ins. Co. v. Superior Court, supra, 36 Cal.App.4th at pp. 278-279.)

Mercury Ins. Group v. Superior Court, supra, 19 Cal.4th 332 , also involved a trial court order requiring joinder of an uninsured motorist claim and related civil action under section 1281.2(c). The Mercury court likewise

addressed the issue of whether the trial court had the authority to consolidate an uninsured motorist arbitration proceeding and the insured’s pending action against third parties, in order to avoid conflicting rulings on a common issue of law or fact. Consistent with Prudential, our high court in Mercury held that the right to contractual uninsured motorist arbitration may yield to the statutory exception under section 1281.2(c) to mandatory contractual arbitration. (Mercury, supra, at pp. 347-348.)

Plaintiff’s and the trial court’s reliance on Prudential and Mercury is misplaced. Prudential and Mercury are distinguishable from the instant case in a major way. Prudential and Mercury do not involve a contract provision requiring arbitration of a dispute involving interstate commerce. Hence, the uninsured motorist arbitration claims in Prudential and Mercury were not subject to the FAA and, as a consequence, the Prudential and Mercury courts did not address the issue raised in the instant case as to whether the FAA preempted the section 1281.2(c) exception to mandatory enforcement of an arbitration clause. As noted in Mercury, “A decision,-of course, is not authority for what it does not consider.” (.Mercury Ins. Group v. .Superior Court, supra, 19 Cal.4th at p. 348.)

3. FAA Preemption

Section 2 of the FAA provides: “A written provision in ... a contract evidencing a transaction involving [interstate] commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” ( 9 U.S.C. § 2 .)

In order for the Health Net plan to be subject to the FAA, the plan must involve interstate commerce. As we explained in Erickson v. Aetna Health Plans of California, Inc. (1999) 71 Cal.App.4th 646 [ 84 Cal.Rptr.2d 76 ], “ ‘Commerce’ for purposes of FAA coverage ‘is to be broadly construed so as to be coextensive with congressional power to regulate under the Commerce Clause.’ [Citations.]” (Id. at p. 651.) We concluded in Erickson that the Aetna Health Plans (Aetna Plan) involved interstate commerce for FAA purposes because it replaced Medicare coverage and entered into interstate contracts with vendors and service providers operating on a national basis. (Ibid.) Likewise, here, the Health Net plan covered Medicare subscribers and provided coverage for emergency patient care received anywhere in the world and for medication manufactured and distributed throughout the country.

Having concluded the Health Net plan involves interstate commerce and thus is subject to the FAA, the remaining question is whether section

1281.2(c) is inconsistent and hence preempted by the FAA. Section 1281.2(c), which allows the state court to disregard an arbitration clause due to the possibility of inconsistent rulings, is clearly inconsistent with the FAA’s general mandate requiring enforcement of arbitration clauses. Because the Health Net plan arbitration clause is governed by the FAA, its validity must be determined by principles applicable to contracts generally rather than by the specific state rules limited to governing arbitration contracts.

As with California’s contractual arbitration law, which appears at section 1280 et seq., “The FAA, and section 2 in particular, ‘was intended to “revers[e] centuries of judicial hostility to arbitration agreements,” [citation] by “plac[ing] arbitration agreements ‘upon the same footing as other contracts.”” [Citation.] Through the FAA, ‘Congress precluded States from singling out arbitration provisions for suspect status . . . .’ (Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681 , 687 [ 116 S.Ct. 1652 , 1656, 134 L.Ed.2d 902 ] [striking down state law requiring special notice for arbitration provisions in contracts].)” (Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066 , 1074 [ 90 Cal.Rptr.2d 334 , 988 P.2d 67 ]; see also Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468 , 474, and 476, fn. 5 [ 109 S.Ct. 1248 , 1253, 1254, 103 L.Ed.2d 488 ].)

Thus, “[s]tate courts may, without violating section 2 [of the FAA], decline to enforce arbitration clauses on the basis of ‘generally applicable contract defenses, such as fraud, duress or unconscionability. ’ However, they may not do so on the basis of ‘state laws applicable only to arbitration provisions.’ [Citation.]” (Erickson v. Aetna Health Plans of California, Inc., supra, 71 Cal.App.4th at pp. 650-651.)

Here, the state statutory defense provided in section 1281.2(c) is not a contractual defense generally applicable to all contracts. It only applies to arbitration clauses. “ ‘A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of § 2. [Citations.]’ ” (Broughton v. Cigna Healthplans, supra, 21 Cal.4th at p. 1075.) Reliance on section 1281.2(c) as a basis for derogating an arbitration clause, thus, is prohibited under the FAA since it is not a defense applicable to all contracts.

In Erickson v. Aetna Health Plans of California, Inc., supra, 71 Cal.App.4th 646 , Aetna Plan appealed from the denial of its motion to compel arbitration of various claims brought by the insured arising from the alleged failure to provide timely cancer treatment. We held in Erickson that state law, requiring certain disclosures in an arbitration clause in a health care service plan (Health & Saf. Code, § 1363.1), was preempted by the FAA and the arbitration clause was enforceable. (Erickson, supra, at p. 652.)

Even staying arbitration pursuant to section 1281.2(c) has been held to violate the FAA. (The Energy Group, Inc. v. Liddington (1987) 192 Cal.App.3d 1520 , 1522 [ 238 Cal.Rptr. 202 ].) The court in The Energy Group, explained that “The use of Code of Civil Procedure 1281.2 to stay arbitration of a dispute pending completion of court litigation does not involve the question of whether a contract has been formed. It does not render a contract void or subject to rescission; the contract remains valid. Moreover, by its own terms, section 1281.2 applies only to contracts subject to arbitration. In our view, this is not a situation in which application of state law can be justified under the [Perry v. Thomas (1987) 482 U.S. 483 [ 107 S.Ct. 2520 , 96 L.Ed.2d 426 ]] dictum [citation] which allows use of substantive state contract law that is generally applicable to all contracts. We hold, therefore, that section 1281.2 has been preempted by the FAA if it is used in order to avoid or delay arbitration of a contract dispute governed by the FAA. (Cf. Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213 [ 84 L.Ed.2d 158 , 105 S.Ct. 1238 ].)” (The Energy Group, supra, atp. 1528, italics added, fn. omitted.)

4. Choice of Law Exception to FAA

Plaintiff argues that the section 1281.2(c) exception to contractual arbitration is not preempted by the FAA because the Health Net plan contains a choice of law provision expressly stating that arbitration shall be conducted in accordance with California contractual arbitration law, commencing at section 1280.

In Volt Info. Sciences v. Leland Stanford Jr. U., supra, 489 U.S. 468 , Volt petitioned the court to compel arbitration under section 1281.2 and the FAA. The respondent, Stanford University, moved to stay the arbitration under section 1281.2(c), until resolution of the related civil lawsuit. The underlying construction contract contained an agreement to arbitrate all disputes arising out of the contract. The contract further provided that “ ‘[t]he Contract shall be governed by the law of the place where the Project is located’ ” (Volt Info. Sciences at p. 470 [109 S.Ct. at p. 1251]), that is, California. The trial court denied Volt’s motion to compel and ordered the arbitration proceedings stayed under section 1281.2(c), pending resolution of the related civil litigation.

The United States Supreme Court in Volt held that “application of the California statute [section 1281.2(c)] is not pre-empted by the Federal Arbitration Act (FAA or Act), 9 U.S.C. § 1 et seq., in a case where the parties have agreed that their arbitration agreement will be governed by the law of California.” (Volt Info. Sciences v. Leland Stanford Jr. U., supra, 489

U.S. at p. 470 [109 S.Ct. at p. 1251].) The Volt court explained that “the FAA does not confer a right to compel arbitration of any dispute at any time; it confers only the right to obtain an order directing that ‘arbitration proceed in the manner provided for in [the parties’] agreement.’ 9 U.S.C. § 4 (emphasis added). Here the Court of Appeal found that, by incorporating the California rules of arbitration into their agreement, the parties had agreed that arbitration would not proceed in situations which fell within the scope of Calif. Code Civ. Proc. Ann. § 1281.2(c) (West 1982).” (Volt Info. Sciences, supra, at pp. 474-475 [109 S.Ct. at p. 1253].) The Volt court added that “There is no federal policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the enforceability, according to their terms, of private agreements to arbitrate. Interpreting a choice-of-law clause to make applicable state rules governing the conduct of arbitration . . . does not offend the rule of liberal construction . . . , nor does it offend any other policy embodied in the FAA.” (Id. at p. 476 [109 S.Ct. at p. 1254], fn. omitted.)

The Volt court explained that, “In recognition of Congress’ principal purpose of ensuring that private arbitration agreements are enforced according to their terms, we have held that the FAA pre-empts state laws which ‘require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.’ [Citations.] But it does not follow that the FAA prevents the enforcement of agreements to arbitrate under different rules than those set forth in the Act itself. Indeed, such a result would be quite inimical to the FAA’s primary purpose of ensuring that private agreements to arbitrate are enforced according to their terms. . . . Where, as here, the parties have agreed to abide by state rules of arbitration, enforcing those rules according to the terms of the agreement is fully consistent with the goals of the FAA, even if the result is that arbitration is stayed where the Act would otherwise permit it to go forward.” (Volt Info. Sciences v. Leland Stanford Jr. U., supra, 489 U.S. at pp. 478-479 [109 S.Ct. at pp. 1255-1256].)

Health Net argues that Volt is limited to applying section 1281.2 solely for the purpose of staying arbitration and does not support the proposition that denial of arbitration is also permissible where the parties agree to apply California law. We disagree. Although the court in Volt did not consider whether the trial court may deny a motion to compel arbitration under the section 1281.2(c) exception to mandatory arbitration, Volt nevertheless provides clear guidance in resolving this issue as well. The Volt court emphasized that the primary legislative motivation for enacting the FAA was “to enforce agreements into which parties had entered,” and that “the FAA does not require parties to arbitrate when they have not agreed to do so . . .

with the exception of the cause of action for public injunctive relief (Bus. & Prof. Code, § 17200). Plaintiff’s counsel argued that under Groom v. Health Net (2000) 82 Cal.App.4th 1189 [ 98 Cal.Rptr.2d 836 ], and Broughton v. Cigna Healthplans, supra, 21 Cal.4th 1066 , the injunctive relief cause of action was not an arbitrable claim. Following oral argument, Health Net filed a request to brief the issue. This court granted Health Net’s request and permitted both parties to file supplemental briefing.

Health Net argues in its supplemental brief that (1) plaintiff waived the issue by not raising it until oral argument; (2) the issue is moot because the trial court sustained, without leave to amend, other parties’ similar injunctive relief cause of actions and therefore will likely do so as to plaintiff’s injunctive relief cause of action; (3) Broughton is distinguishable because it involved a claim under the Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750), rather than a claim under Business and Professions Code section 17200; (4) Groom did not analyze the issue and thus should not be relied upon; and (5) if this court severs the injunctive relief cause of action, this court should order trial of that cause of action stayed until the remainder of the action is arbitrated.

Although plaintiff should have raised this issue in its respondent’s brief, prior to oral argument, Health Net has not been prejudiced by plaintiff’s tardiness since this court gave Health Net an opportunity to fully brief the issue. We further conclude that the issue is not moot as to the parties to this appeal since, to date, the trial court has not sustained a demurrer to the injunctive relief cause of action which is the subject of this appeal.

As to Health Net’s request for a stay of the injunctive relief cause of action pending arbitration of the remainder of the action, we leave for the trial court the determination as to how it wishes to proceed once this case is remanded for trial of the injunctive relief cause of action.

Finally, we conclude that under Groom and Broughton, the public injunctive relief cause of action is not arbitrable since it is beyond the arbitrator’s power to grant the relief requested and thus must be severed from the other arbitrable claims and adjudicated in a judicial forum. (Broughton v. Cigna Healthplans, supra, 21 Cal.4th atpp. 1079-1080; Groom v. Health Net, supra, 82 Cal.App.4th at p. 1199.)

7. Disposition

The judgment is reversed with directions that the trial court grant Health Net’s motion to compel arbitration, with the exception of the cause of action

for public injunctive relief, which shall be severed from the arbitrable claims and adjudicated in a judicial forum. Health Net is awarded its costs on appeal.

Ramirez, P. J., and McKinster, J., concurred.