Judge: Anne Richardson, Case: 23STCV17826, Date: 2024-05-23 Tentative Ruling

DEPARTMENT 40 - JUDGE ANNE RICHARDSON - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 23STCV17826    Hearing Date: May 23, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

I. Background

A. Pleadings

Plaintiffs Ashley Stottlemeyer and Katrenia Stottlemeyer (Katrenia), by and through her guardian ad litem Ashley Stottlemeyer, sue Defendants Blue Cross of California dba Anthem Blue Cross and Anthem Blue Cross Life and Health Insurance Company (collectively Anthem Blue Cross) pursuant to a November 27, 2023, First Amended Complaint (FAC) alleging claims of (1) Negligence and (2) Promissory Fraud.

The claims arise from the following allegations, contained in the first paragraph of the FAC. Katrenia was being treated for a serious health condition that threatened her life. Anthem Blue Cross decided that they would no longer cover this treatment on the basis it was not “medically necessary.” This decision was wrong and known by Anthem Blue Cross to be wrong, given the medical information and other information that was provided to Anthem Blue Cross by Katrenia’s mother, Ashley, which, demonstrated that the elements of the group health contract’s definition of medical necessity were met. Even after Ashley filed appeals from Anthem Blue Cross’s wrongful denial of further treatment of Katrenia, Anthem Blue Cross continued to ignore the facts and simply reiterated their erroneous position, breaking their promise to provide a full and fair review of any denied claim. Anthem Blue Cross’s failure to correct their decision was part of Anthem Blue Cross’s broken “grievance” system of failing to properly address and resolve member appeals resulting in further harm to covered members needing health care.

B. Motion Before the Court

On February 9, 2024, Anthem Blue Cross filed a petition to compel arbitration of Plaintiffs’ claims and to stay this action pending the outcome of arbitration. Anthem Blue Cross brings their motion pursuant to the Federal Arbitration Act (FAA) or to the California Arbitration Act (CAA), and pursuant to two alleged agreements between Plaintiffs and third parties, to be read in conjunction, with equitable estoppel and other principles allowing Anthem Blue Cross to invoke the purported arbitration clause.

On April 11, 2024, Plaintiffs filed an opposition to Anthem Blue Cross’s motion.

On May 1, 2024, Anthem Blue Cross filed a reply to Plaintiffs’ opposition.

On May 13, 2024 Plaintiff filed a notice of new authority, and objections to the evidence submitted by Defendants in the Reply. On May 21, 2024, Plaintiff filed a second notice of new authority in opposition to Defendant's petition to compel arbitration. The two new authorities need not be considered to reach the Court’s ruling below.

Anthem Blue Cross’s motion is now before the Court.

II. Petition to Compel Arbitration: GRANTED.

A. Evidentiary Objections

1. Plaintiffs, Opposition, Evidentiary Objections

Objection Nos. 1-3: OVERRULED.

2. Plaintiffs, Post-Reply Evidentiary Objections

Objection Nos. I.1.-II.2.: OVERRULED.

B. Legal Standard

The Federal Arbitration Act (“FAA”) applies in California courts in matters concerning interstate commerce and requires state courts to enforce arbitration agreements as required by the federal common law developed under the FAA. (See Southland Corp. v. Keating (1984) 465 U.S. 1, 15-16 (Southland Corp.); Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1074-78, superseded by statute on another ground as stated in Ferguson v. Corinthian Colleges, Inc. (9th Cir. 2013) 733 F.3d 928, 937.).) The FAA preempts and invalidates state law and state judicial decisions that disfavor arbitration or require arbitration provisions to pass higher scrutiny. (Southland Corp., supra, at p. 12; Perry v. Thomas (1987) 482 U.S. 483, 490.) If the parties designate the FAA applies, then California arbitration law is preempted. (See, e.g., Rodriguez v. American Techs., Inc. (2006) 136 Cal.App.4th 1110, 1121-1122.)  Where the FAA is found not to apply, the California Arbitration Act (Code Civ. Proc. § 1280 et seq.) applies. (See Valencia v. Smyth (2010) 185 Cal.App.4th 153, 178 (Valencia).)

 A court’s inquiry is limited to a determination of (1) whether a valid arbitration agreement exists and (2) whether the arbitration agreement covers the dispute. (9 U.S.C. § 4; Chiron Corp. v. Ortho Diagnostics Systems, Inc. (9th Cir. 2000) 207 F.3d 1126, 1130; Howsam v. Dean Witter Reynolds, Inc. (2002) 537 U.S. 79, 84; see Simula, Inc. v. Autoliv, Inc. (9th Cir. 1999) 175 F.3d 716, 720 [if the finding is affirmative on both counts the FAA requires the Court to enforce the arbitration agreement in accordance with its terms]; see Omar v. Ralphs Grocery Co. (2004) 118 Cal.App.4th 955, 961 [In determining the enforceability of an arbitration agreement, the court first considers “two ‘gateway issues’ of arbitrability: (1) whether there was an agreement to arbitrate between the parties, and (2) whether the agreement covered the dispute at issue”] Lacayo v. Cataline Restaurant Group Inc. (2019) 38 Cal.App.5th 244, 257 (Lacayo) [Where moving party meets initial burden, “the party opposing arbitration must prove by a preponderance of the evidence any defense to the petition”].)

“An order to arbitrate the particular grievance should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” (United Steelworkers of America v. Warrior & Gulf Navigation Co. (1960) 363 U.S. 574, 582-583.) 

 Moreover, the general rule is that the FAA governs all agreements to arbitrate in contracts “involving interstate commerce.” (Higgins v. Superior Court (2006) 140 Cal.App.4th 1238, 1247.) The term “involving” commerce “is broad and is indeed the functional equivalent of “affecting’ commerce.” (Allied-Bruce Terminix Companies, Inc. v. Dobson (1995) 513 U.S. 265, 273-274.) The U.S. Supreme Court has held that this broad interpretation includes employment contracts. (See Circuit City Stores v. Adams (2001) 532 U.S. 105, 106.) The defendant bears the burden of proving applicability of the FAA by showing that its activities constitute interstate commerce. (Hoover v. Am. Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1207.) Failure to demonstrate that the employment agreement affects interstate commerce renders the FAA inapplicable. (See Lane v. Francis Capital Management LLC (2014) 224 Cal.App.4th 676, 687-688 (Lane); Woolls v. Superior Court (2005) 127 Cal.App.4th 197, 212.)

Even where the FAA governs the interpretation of arbitration clauses, California law governs whether an arbitration agreement has been formed in the first instance. (Baker v. Osborne Development Corp. (2008) 159 Cal.App.4th 884, 893.) 

C. Analysis

1. Whether There is An Agreement to Arbitrate Between the Parties

a. Relevant Law

“Parties are not required to arbitrate their disagreements unless they have agreed to do so. [Citation.] A contract to arbitrate will not be inferred absent a ‘clear agreement.’ [Citation.] When determining whether a valid contract to arbitrate exists, we apply ordinary state law principles that govern contract formation. [Citation] In California, a ‘clear agreement’ to arbitrate may be either express or implied in fact. [Citation.]” (Davis v. Nordstrom, Inc. (9th Cir. 2014) 755 F.3d 1089, 1092-93 [applying California law].) The court is only required to make a finding of the agreement’s existence, not an evidentiary determination of its validity. (Condee v. Longwood Management Corp. (2001) 88 Cal.App.4th 215, 219.)

b. Court’s Determination

Here, the Court finds that no agreement to arbitrate exists between the parties.

First, as to the purported electronic enrollment application for health coverage with the County submitted around November 22, 2022, there is insufficient authentication of an electronic signature. (Mot., DiDomenico Decl., Ex. 2 [purported electronic application].)

California case law has held that an electronic signature was properly authenticated when a declarant “detailed [the company’s] security precautions regarding transmission and use of an applicant’s unique username and password, as well as the steps an applicant would have to take to place his or her name on the signature line of the employment agreement …,” such that, “[b]ased on this procedure, [the declarant] concluded that the ‘name [of the employee] could have only been placed on the signature pages of the employment agreement … by someone using [the employee’s] unique user name and password,’” and that “ [g]iven this process for signing documents and protecting the privacy of the information with unique and private user names and passwords, the electronic signature was made by [the employee] on the employment agreement … at the date, time, and IP address listed on the documents.” (Espejo v. Southern California Permanente Medical Group (2016) 246 Cal.App.4th 1047, 1062 (Espejo).)

The circumstances here in the six paragraphs of the DiDomenico declaration are completely distinguishable from the standard set out in Espejo.

Instead, the DiDomenico declaration more closely resembles the circumstances in Ruiz v. Moss Bros. Auto Group, Inc., supra, 232 Cal.App.4th at p. 844. There, the court of appeal held that an electronic signature was not verified when the “[declarant] only offered her unsupported assertion that [the employee] was the person who electronically signed the 2011 agreement” instead of explaining how “an electronic signature in the name of ‘[the employee]’ could only have been placed on the 2011 agreement (i.e., on the employee acknowledgement form) by a person using [the employees]’s ‘unique login ID and password,’” with “the date and time printed next to the electronic signature indicat[ing] the date and time the electronic signature was made,” and where “all … employees were required to use their unique login ID and password when they logged into the HR system and signed electronic forms and agreements,” such that “the electronic signature on the … agreement was, therefore, apparently made by [the employee] on [the specified time and date].” (Ruiz v. Moss Bros. Auto Group, Inc., supra, 232 Cal.App.4th at p. 844.)

The motion’s Kim declaration and the reply’s Barrera declaration do not remedy this problem. And the opposition raises issues as to whether DiDomenico had the personal knowledge and foundational basis for her declaration, which appear well taken (she did not take the screenshots, but rather received them from a subcontractor, who received them from the administrator of the electronic enrollment process).

The burden of persuasion is always on the moving party to prove the existence of an arbitration agreement with the opposing party by a preponderance of the evidence. (Gamboa v. Northeast Community Clinic (2021) 72 Cal.App.5th 158, 164-165, citations omitted.) Here, because the DiDomenico declaration more closely resembles Ruiz than Espejo, Anthem Blue Cross has failed to show by a preponderance of the evidence that an agreement to arbitrate arises from the purported electronic enrollment application for health coverage with the County submitted around November 22, 2022.

The Court turns now to the the Benefit Booklet.

Anthem Blue Cross is by the terms of the Benefit Booklet not one of the parties that can invoke the arbitration agreement therein. “The member [Plaintiffs] and the plan administrator [PRISM] agree to be bound by this Binding Arbitration provision and acknowledge that they are each giving up their right to a trial by court or jury.” (Mot., DiDomenico Decl., Ex. 1, pp. 159 [quoted language], 167-168 [defining member as subscriber or dependent], 171 [“refers to PRISM”].)

Anthem Blue Cross argues that this is not fatal because they may invoke the arbitration clause under the doctrine of equitable estoppel. The Court agrees that this doctrine supports compelling arbitration in this case.

Under the doctrine of equitable estoppel, “a nonsignatory defendant may invoke an arbitration clause to compel a signatory plaintiff to arbitrate its claims when the causes of action against the nonsignatory are ‘intimately founded in and intertwined’ with the underlying contract obligations.” (JSM Tuscany, LLC v. Superior Court (2011) 193 Cal.App.4th 1222, 1237.)

The doctrine applies in either of two circumstances: (1) when the signatory must rely on the terms of the written agreement containing the arbitration clause in asserting its claims against the nonsignatory; or (2) when the signatory alleges “substantially interdependent and concerted misconduct” by the nonsignatory against a signatory and the alleged misconduct is “founded in or intimately connected with the obligations of the underlying agreement.” (Goldman v. KPMG, LLP (2009) 173 Cal.App.4th 209, 218-219.)

A nonsignatory seeking to enforce an arbitration agreement has the burden to establish at least one of these circumstances applies. (Jones v. Jacobson (2011) 195 Cal.App.4th 1, 16.)

Anthem Blue Cross argues that “[b]ecause Plaintiffs’ claims rely exclusively on alleged improper conduct with respect to the utilization management review and denial of treatment on the basis of medical necessity, Plaintiffs’ claims are premised upon and inextricably tied to Plaintiffs’ Benefit Booklet and covered under the arbitration provision.” (Mot., p. 13.)

It is true, as argued by Plaintiffs, that Anthem Blue Cross has admitted to drafting the Benefit Booklet with PRISM’s permission, which, as discussed above, does not include Anthem Blue Cross as one of the parties that can invoke the arbitration agreement. (Opp’n, Barrio Decl., Ex. 2, p. 5, ¶ l. & p. 15, ¶ a & Ex. 4, Lamb Deposition, 30:21-31:20 & Ex. 5, DiDomenico Deposition, 34:8-36:16; see Reply, p. 5 [“Plaintiffs’ accusation that Anthem drafted the Benefit Booklet with some nefarious hidden motive is the stuff of fantasy”].) The arbitration provision repeatedly references arbitration between the member and the plan administrator (Prism) but not the claims administrator – Anthem.

However, despite Plaintiffs’ allegations that the Benefit Booklet is not critical to their claims, the Complaint would seem to indicate otherwise.  Paragraph 10 of the Complaint first identifies the Benefit Booklet and in its allegations thereafter it indicates that such Booklet provides the parameters of this case. For example, in paragraphs 13 and 14 (and thereafter) Plaintiffs allege that the Benefit Booklet provided for health care services to treat illnesses and injuries that are “medically necessary” and that it thereafter defined the term “medically necessary.” The breach of contract and implied covenant claims are dependent on the Booklet providing the terms of the contract. The third cause of action for negligence also refers to the Booklet at paragraph 37.  Accordingly, the Complaint here supports Anthem’s argument that equitable estoppel is appropriate here under the theory that a “nonsignatory may compel a signatory to arbitrate its claims when the signatory’s claims are based upon  and intertwined with a contract containing an arbitration agreement.” (Turtle Ridge Media Group, Inc. v. Pacific Bell Directory (2006) 140 Cal.App.4th 828, 833.)

2. Unconscionability

a. Relevant Law

“Both procedural unconscionability and substantive unconscionability must be shown [for a finding of unconscionability to exist], but ‘they need not be present in the same degree’ and are evaluated on a ‘sliding scale.’ [Citation.] ‘[T]he more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” (Pinnacle Museum Tower Assn. v. Pinnacle Market Dev. (US), LLC (2017) 55 Cal.4th 223, 247 (Pinnacle).)

Whether an arbitration provision is unconscionable is a question of law. (Suh v. Superior Court (2010) 181 Cal.App.4th 1504, 1511-1512.)

Unconscionability is determined from facts arising at the time the contract was made. (Martinez v. Master Protection Corp. (2004) 118 Cal.App.4th 107, 116 (Martinez) [“‘The critical juncture for determining whether a contract is unconscionable is the moment when it is entered into by both parties—not whether it is unconscionable in light of subsequent events,’” citation omitted]; see Code Civ. Proc., § 1670.5 [where the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made, the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause], limited on preemption grounds in AT&T Mobility, LLC v. Concepcion (2011) 563 U.S. 333, 340-350 (Concepcion) [limitation as to class-action waivers in arbitration agreements].)

A party claiming that one or more provisions of an arbitration agreement is unconscionable, must not only prove unconscionability in the abstract, but also show how such unconscionability specifically affects the party’s arbitration claim. (Chin v. Advanced Fresh Concepts Franchise Corp. (2011) 194 Cal.App.4th 704, 714 [partial limitation on award of fees and costs for “all claims” limiting amount to one-third of any compensatory damages awarded may be unconscionable, but is not a defense in the absence of a showing that the party would in fact be entitled to recover attorney’s fees], disagreed with in Tiri, supra, 226 Cal.App.4th at p. 241, fn. 4 [disagreement re: when to analyze delegation clause issues].)

b. Court’s Determination

The Court finds that the only aspect of unconscionability that can be found is the fact that the contract is one of adhesion. However, under the caselaw, a finding that a contract of adhesion exists usually connotes a small degree of procedural unconscionability. (See Dotson v. Amgen, Inc. (2010) 181 Cal.App.4th 975, 981 [discussing low level of procedural unconscionability in the adhesion contract at issue and going on to discuss substantive unconscionability]; Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1470, fn. 2 [“When bargaining power is not grossly unequal and reasonable alternatives exist, oppression typically inherent in adhesion contracts is minimal”].) The Court does not find any other procedural unconscionability that is not also present in any arbitration agreement – i.e., repeat players. While this may be an issue for the Legislature, it is not enough to decline to enforce an arbitration agreement given the current state of the law. Nor does the Court find any substantive unconscionability based on the Opposition’s arguments on this point. In terms of any differences between the different arbitration provisions, as the Court is granting the petition to compel arbitration under the Benefits Booklet, those will be the rules to apply to the arbitration.

3. Disposition

Anthem Blue Cross’s motion is GRANTED. 

III. Conclusion

Defendants Blue Cross of California dba Anthem Blue Cross and Anthem Blue Cross Life and Health Insurance Company’s Petition to Compel Arbitration and Stay Trial Court Proceedings is GRANTED. The Court will set an OSC re: Status of Arbitration in approximately one year.