Judge: Bruce G. Iwasaki, Case: 22STCP04084, Date: 2023-01-27 Tentative Ruling

Case Number: 22STCP04084    Hearing Date: January 27, 2023    Dept: 58

Judge Bruce G. Iwasaki

Department 58

Hearing Date:             January 27, 2023

Case Name:                Anthem Blue Cross Life and Health Insurance Company v. SAG-AFTRA Health Plan et al.

Case No.:                    22STCP04084

Matter:                        Petition to consolidate arbitration proceedings

Moving Parties:          Petitioner Anthem Blue Cross Life and Health Insurance Company

Responding Party:      SAG-AFTRA Health Plan

Background

            This is a petition to consolidate arbitration proceedings.  Anthem Blue Cross Life and Health Insurance Company (Anthem) moves to consolidate two arbitration proceedings: between Anthem and Cedars-Sinai Medical Center (Cedars) and Anthem and SAG-AFTRA Health Plan (SAG).  The proceedings relate to medical care that was provided by Cedars to a member of SAG (Member) of at least $4.3 million.  SAG reportedly paid $500,000 to Cedars, but $3.8 million remain outstanding.

            After SAG refused to pay the remaining balance, Cedars initiated an arbitration proceeding against Anthem for breach of contract in failing to pay Cedars the $3.8 million or, alternatively, for Anthem’s alleged failure in requiring SAG to pay Cedars (Anthem-Cedars Arbitration).

            During the pendency of the Anthem-Cedars Arbitration, Anthem tendered its defense and request for indemnification to SAG under the terms of the Anthem-SAG agreement.  When SAG refused, Anthem initiated a separate arbitration proceeding against SAG for breach of contract alleging SAG’s failure to pay the claim, defend, and indemnify Anthem (Anthem-SAG Arbitration). 

            Anthem subsequently requested that the arbitration panel in the Anthem-Cedars Arbitration consolidate the Anthem-SAG Arbitration into its proceeding.  The panel denied the request without explanation.  Anthem now petitions this Court to consolidate both proceedings. 

            Anthem argues that the requirements for consolidation are met: it is a party to two arbitrations between two different third-parties, Cedars and SAG; the disputes both arise from SAG’s refusal to pay the full cost of the Member’s care; and there is a risk of conflicting rulings that leave Anthem liable for the entire bill.  It principally contends that the “quality-of-care” issue is central in both arbitrations.  That is, “Whether Cedars’ treatment of the member was medically necessary and/or raised quality-of-care issues that excused SAG’s payment?”

SAG opposes consolidating the two arbitration proceedings. It contends that the Federal Arbitration Act (FAA) governs the Anthem-SAG agreement, which prohibits a court from deciding the consolidation issue.  SAG further contends that consolidation would deprive it of the right to select its arbitrator and the Anthem-Cedars arbitrator already denied Anthem’s previous request for consolidation.  Finally, it asserts that there is no possibility of conflicting rulings because the arbitrators are deciding different provisions in two different contracts.  Anthem reiterated its arguments in reply.

Legal Standard

Code of Civil Procedure section 1281.3 sets forth three requirements for consolidating arbitration proceedings at the request of a party to an arbitration agreement:

A party to an arbitration agreement may petition the court to consolidate separate arbitration proceedings, and the court may order consolidation of separate arbitration proceedings when:

(1) Separate agreements or proceedings exist between the same parties; or one party is a party to a separate arbitration agreement or proceeding with a third party; and

(2) The disputes arise from the same transactions or series of related transactions; and

(3) There is common issue or issues of law or fact creating the possibility of conflicting rulings by more than one arbitrator or panel of arbitrators.

In enacting this statute, “California has manifested a strong policy favoring consolidating arbitrations involving common issues of law and fact. There are at least three important aims of this policy: the efficient settling of private disputes, judicial economy, and the avoidance of contrary results.” (Garden Grove Community Church v. Pittsburgh-Des Moines Steel Co. (1983) 140 Cal.App.3d 251, 262 (Garden Grove).)

Discussion

The California Arbitration Act, not the Federal Arbitration Act, applies under the SAG-Anthem arbitration agreement.

            SAG contends that the FAA applies, while Anthem argues that the California Arbitration Act (CAA) applies to their agreement.  The CAA governs here.

            “ ‘[T]he question is not whether the parties adopted the CAA’s procedural provisions: The state’s procedural statutes (§§ 1281, 1290) apply by default because Congress intended the comparable FAA sections (9 U.S.C. §§ 3, 4, 10, 11) to apply in federal court. The question, therefore, is whether the parties expressly incorporated the FAA's procedural provisions into their agreements.’ ”  (Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 345.)

            The party that contends the FAA applies bears the burden to demonstrate that the arbitration agreement is in a “ ‘contract evidencing a transaction involving commerce.’ ” (Woolly v. Superior Court (2005) 127 Cal.App.4th 197, 211; 9 U.S.C. § 2.) “The United States Supreme Court has determined that the phrase ‘ “involving commerce” ’ in the FAA is the functional equivalent of the term ‘ “affecting commerce,” ’ which is a term of art that ordinarily signals the broadest permissible exercise of Congress’ commerce clause power.” (Shepard v. Edward Mackay Enterprises, Inc. (2007) 148 Cal.App.4th 1092, 1097.) In determining if the FAA applies, “the pertinent question is whether the contract evidences a transaction involving interstate commerce, not whether the dispute arises from the particular part of the transaction involving interstate commerce.” (Id. at p. 1101.)

            SAG provide the declaration of its Chief Healthcare Analytics Officer, H. Peter Lee, who attests that SAG members live throughout the United States and the company regularly engages in transactions domestically and internationally.  (Lee Decl., ¶ 4.)  However, “the presence of interstate commerce [is] not sufficient, by itself to make the FAA’s procedural provisions, including its provisions regarding judicial review . . . applicable in California state courts.”  (Mave Enterprises, Inc. v. Travelers Indemnity Co. (2013) 219 Cal.App.4th 1408, 1429.)  By default, a state court “applies its own procedural law—here, the procedural provisions of the CAA—absent a choice-of-law provision expressly mandating the application of the procedural law of another jurisdiction.”  Thus, the FAA’s substantive provision applies to the arbitration, but the procedural provisions do not apply unless the contract expressly incorporates it.  (Ibid.)

            Here, Article 20 of the Anthem-SAG agreement states that “Except to the extent preempted by ERISA or any other applicable provisions of federal law, this Agreement shall be governed by, and shall be construed in accordance with the laws of California but without giving effect to that state’s rules governing conflict of laws.”  (Lee Decl., Ex. B.)  There are no other provisions in that contract that reference the FAA.  Therefore, the Court finds that the CAA applies.  (See Duffens v. Valenti (2008) 161 Cal.App.4th 434, 452 [“Where an arbitration provision contains California choice of law language, the parties’ intent is inferred that state law will apply for resolving motions to compel arbitration”]; Harris v. Bingham McCutchen LLP (2013) 214 Cal.App.4th 1399, 1407 [“But, to the extent a state law is not inconsistent with the Federal Arbitration Act's policies, choice-of-law clauses are interpreted to incorporate the chosen state’s laws governing the enforcement of arbitration agreements”]; Mount Diablo Medical Center v. Health Net of Cal. (2002) 101 Cal.App.4th 711, 726 [“where the state arbitration provision is not inconsistent with the FAA policy of enforcing arbitration procedures chosen by the parties, choice-of-law clauses making no explicit reference to arbitration commonly have been interpreted to incorporate the state’s law governing the enforcement of arbitration agreements”].)

            SAG relies on Sovak v. Chugai Pharmaceutical Co. (9th Cir. 2002) 280 F.3d 1266, 1270 for the argument that “[a] general choice-of-law clause means state substantive law applies, but ‘not state law rules for arbitration.”  The reliance is misplaced.  Sovak relied on the reasoning of Wosley, Ltd. v. Foodmaker, Inc. (9th Cir. 1998) 144 F.3d 1205 and Mastrobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52.  However, the California Supreme Court expressly declined to follow Woley, Ltd. v. Foodmaker.  (Cronus Investments, Inc. v. Concierge Services (2005) 35 Cal.4th 376, 393, fn. 8.)  Our Supreme Court also distinguished Mastrobuono v. Shearson Lehman Hutton, Inc. on its facts, noting that the policy at issue in Mastrobuono “directly impeded the FAA’s goals, thus triggering the FAA preemption.”  (Id. at p. 393 [contrasting Mastrobuono with Volt Information Sciences, Inc. v. Board of Trustees (1989) 489 U.S. 468, in which the state policy “furthered the federal goal of encouraging arbitration” and thus the choice-of-law clause was not preempted].)  SAG’s citation to other non-binding federal cases is unpersuasive.

            As the Court finds that the CAA applies, and not the FAA, the Court declines to consider SAG’s other arguments regarding the FAA.  Thus, Code of Civil Procedure section 1281.3 applies, and the Court has discretion to consolidate the arbitration.

Anthem is not seeking to re-litigate the arbitrator’s denial of consolidation in the Anthem-Cedars Arbitration.

            SAG next contends that the Cedars-Sinai arbitrator has already denied Anthem’s consolidation request and that the contract between those parties preclude re-litigating the issue in court. 

SAG cites to Article 9.3 of the Anthem-Cedars agreement, which states that “HOSPITAL and BLUE CROSS agree that the arbitration results shall be binding on both parties in any subsequent litigation or other dispute.”  First, SAG does not have standing to enforce the Anthem-Cedars agreement given that it is not a party to that contract.  (Ronay Family Limited Partnership v. Tweed (2013) 216 Cal.App.4th 830, 837 [“The general rule is that only a party to an arbitration agreement may enforce it”].)  Since Anthem is bringing this petition to consolidate and Cedars joins in that request, neither party invokes that provision.  Second, the word “results” suggest that this applies to a final award, not procedural rulings during the proceedings.  Indeed, SAG’s cited case of Vandenberg v. Superior Court (1999) 21 Cal.4th 815, 834 expressly references the preclusive effect of a “private arbitration award.”  (Italics added.)  Thus, the Court does not find that the arbitrator’s ruling to deny consolidation in the Anthem-Cedars arbitration has any preclusive effect.

There is a possibility of conflicting rulings because the central issue is whether Anthem or SAG is liable for Cedars’ damages.

The Court finds that the requirements of Code of Civil Procedure section 1281.3 are met. There are separate arbitration proceedings between Anthem and two third-parties, SAG and Cedars.  The dispute arises out of the same underlying transaction – whether the Member’s care was medically necessary, and which entity is liable for those costs.  There is also the possibility of conflicting rulings.  Viewed broadly, for example, in the Anthem-Cedars Arbitration, the arbitrator may decide that Anthem is responsible for paying the remaining balance on the Member’s bills (thus finding there was medical necessity).  However, in the Anthem-SAG Arbitration, the arbitrator could find that SAG breached its contract with Anthem, therefore obligating SAG to pay Cedars.  In that scenario, there is a conflict as to which entity is liable: one arbitrator would find that SAG is liable while the other finds that Anthem is liable to Cedars to pay the remaining $3.8 million.

            SAG’s contentions are without merit.  It argues that the arbitrator in both proceedings review different contracts.  But this is common in such situations.  (See Garden Grove, supra, 140 Cal.App.3d at pp. 256-257.)  And the statute itself contemplates the need to harmonize different contract terms.  (Code Civ. Proc., § 1281.3 [if the arbitration agreements contain inconsistent provisions, “the court shall resolve such conflicts”].)  SAG views the issues too narrowly.  As an example, it argues that an issue in the Anthem-Cedars Arbitration is whether Anthem breached the contract by failing to require SAG to pay Cedars, which in turn will depend on interpreting the phrase “require.”  Yet, this distinction fails to recognize the broader implication of such a ruling – whether Anthem should be held liable for the $3.8 million to Cedars.  In that sense, the arbitrator in the Anthem-SAG Arbitration may find that SAG itself is liable, which would cause conflict.

            As the three explicit requirements under section 1281.3 are facially met, “[t]here is no reason to deny consolidation unless it would impair a substantial right or obligation of a party under the contract.”  (Garden Grove, supra, 140 Cal.App.3d at p. 264.)  To that end, SAG argues that consolidation would deprive it of “the right to select its own arbitrator, and have that arbitrator choose the third, independent arbitrator.”  Here, because Anthem is seeking to consolidate the Anthem-Cedars Arbitration into the Anthem-SAG Arbitration, SAG can participate in the selection of an arbitrator.[1] 

            Finally, SAG exaggerates that the “Cedars Arbitration is already underway” based on the selection of an arbitrator and that an “evidentiary hearing on the merits” has been scheduled.  SAG cites to the arbitrator’s order denying Anthem’s consolidation request in the Anthem-Cedars Arbitration, but that order merely states that a “scheduling conference” has been set.  There is no indication that this is an “evidentiary hearing on the merits.”  Moreover, the panel in the Anthem-Cedars Arbitration was recently vacated and a new panel has not been appointed.  (Reply, Ex. C.)  Thus, both proceedings are in the early stages.

The Anthem-SAG agreement does not prohibit consolidation.

            SAG next argues that language in its contract with Anthem prohibits consolidation, pointing to Article 26, which states that “Arbitration shall be limited to disputes between the Parties and cannot be consolidated or joined with claims of other persons or entities who may have similar claims.”  But “Section 1281.3 specifically refers to coordinating separate arbitration proceedings.  It does not refer to making parties whose claims are limited to resolution under only one of the arbitrations, ‘a party to any other arbitration’ consolidated for the purposes of being heard at the same time where common facts will resolve issues in each arbitration.”  (Garden Grove, supra, 140 Cal.App.3d at p. 265.)  That is, “[t]his language does not purport to limit the right of a court to order consolidation, it only restricts the right of either party to the agreement to force the other to engage in an arbitration to which there are multiple parties.”  (Id. at p. 264, original italics.)

Conclusion

Anthem’s petition is granted.  Because the requirements of Code of Civil Procedure section 1281.3 are met, the Anthem-Cedars Arbitration (AAA Case No. 01-22-0001-6204) is ordered consolidated with the Anthem-SAG Arbitration (AAA Case No. 01-22-0003-5583).  The parties are ordered promptly to notify AAA of the Court’s order of consolidation and proceed accordingly.