Judge William A. Crowfoot, Case 22AHCV00566 2023-03-22 Tentative Ruling

Judge: William A. Crowfoot, Case: 22AHCV00566, Date: 2023-03-22 Tentative Ruling

On August 9, 2022, plaintiff Liu and Wang Medical Corporation (“Plaintiff”) filed this action against defendants Health Net of California (“Health Net”) and Centene Management Company LLC (“Centene”) (collectively, “Defendants”). Plaintiff asserts claims for breach of contract, open account, account stated, and service had and received. Plaintiff alleges that it provided medical services to Defendants’ insureds but was not fully compensated as promised. Plaintiff further alleges that Defendants charged back compensation already earned by Plaintiff and owes a total of $65,654.91.

On January 17, 2023, Defendants filed this motion to compel arbitration and stay litigation; the motion is brought pursuant to the Federal Arbitration Act (“FAA”) and California Arbitration Act (“CAA”). Defendants claim that there is an arbitration provision within a Provider Participation Agreement (“Agreement”) that Plaintiff entered into with Health Net. (Grigoryan Decl., Ex. A.) The Agreement concerns Plaintiff’s agreement to provide medical services to Health Net’s insureds and to receive compensation based on reimbursement schedules. Plaintiff does not contest the existence of the Agreement but opposes the motion on the grounds that the arbitration provision in the Agreement is procedurally and substantively unconscionable.

The term “Dispute” is defined in the Agreement to mean “any controversy or disagreement that may arise out of or relate to this Agreement, or the breach thereof, whether involving a claim in tort, contract or other applicable law.” (Grigoryan Decl.,Ex. A, § 1.10.) The Agreement requires the parties to participate in an internal appeals process (described in § 4.2.3) before initiating a request to participating in a meet and confer process (described in § 7.5). (Id., § 7.6.) A party must exhaust the internal appeals and meet and confer processes before resorting to arbitration. (Ibid.) Claims alleging medical malpractice between an insured and provider or between the parties alleging breaches of confidentiality of insured information, trade secret, or intellectual property obligations are not subject to arbitration. (Ibid.) All demands for arbitration must be initiated within one year after the date the Dispute arose except for Disputes over Health Net’s alleged non-payment or underpayment of claims, in which case the arbitration shall be filed within 1 year after the date of Health Net’s notice of its final determination on the provider’s internal appeal. (§ 7.6.) Arbitration proceedings shall be administered by AAA or JAMS and any arbitrator must be a judge, or an attorney licensed to practice law in California, who is in good standing with the State Bar, and has at least ten years of experience with health care matters and the arbitration or managed care disputes. (Ibid.)

“‘[U]nconscionability has both a “procedural” and a “substantive” element,’ the former focusing on ‘oppression’ or ‘surprise’ due to unequal bargaining power, the latter on ‘overly harsh’ or ‘one-sided’ results.” (Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 114, citations omitted.) These elements are evaluated on a “sliding scale”: “the 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.” (Ibid.) The unconscionability defense requires a showing of both procedural and substantive unconscionability. (Ibid.)

Procedural unconscionability “pertains to the making of the agreement.” (Ajamian v. CantorCO2e, L.P. (2012) 203 Cal.App.4th 771, 795.) Procedural unconscionability “focuses on two factors: ‘oppression’ and ‘surprise.’ ‘Oppression’ arises from an inequality of bargaining power which results in no real negotiation and ‘an absence of meaningful choice.’ ‘Surprise’ involves the extent to which the supposedly agreed-upon terms of the bargain are hidden in the prolix printed form drafted by the party seeking to enforce the disputed terms.” (Zullo v. Superior Court (2011) 197 Cal.App.4th 477, 484.)

Plaintiff argues that the arbitration provision is procedurally unconscionable because the Agreement was a contract of adhesion and the arbitration provision was “buried” on pages 16-17 as part of the general provisions of the agreement. Plaintiff does not offer any evidence surrounding the making of the Agreement demonstrating the adhesiveness of the contract, nor does it show that there was any element of surprise. Above the signature block with Plaintiff’s representative’s signature is this prominent statement in all-capitalized letters, bold, and underlined font: “This contract contains a binding arbitration clause, which may be enforced by the parties.” Although Plaintiff analogizes the Agreement to an employment contract and attaches opinions in which courts have found arbitration provisions in employment contracts unconscionable, Plaintiff does not offer evidence that supports this analogy. Plaintiff is a medical corporation and a sophisticated business entity.

Even if the Agreement was one that Plaintiff had to sign on a “take it or leave it,” Plaintiff has only established a very low degree of procedural unconscionability, which requires a higher showing of substantive unconscionability to establish a successful defense. As discussed further below, Plaintiff fails to do so. .

“Substantive unconscionability focuses on the actual terms of the agreement and evaluates whether they create ‘overly harsh’ or ‘‘one-sided’ results’ [Citations] that is, whether contractual provisions reallocate risks in an objectively unreasonable or unexpected manner. [Citation] Substantive unconscionability ‘may take various forms,’ but typically is found in the employment context when the arbitration agreement is ‘one-sided’ in favor of the employer without sufficient justification, for example, when ‘the employee’s claims against the employer, but not the employer’s claims against the employee, are subject to arbitration.’ [Citations]” (Roman v. Superior Court (2009) 172 Cal.App.4th 1462, 1469.)

Plaintiff argues that the arbitration provision is substantively unconscionable because it reduces the statute of limitations for a breach of written contract from four years to one year yet also requires Plaintiff to exhaust the internal appeals process and meet and confer process articulated in the Agreement. Plaintiff intimates that more than a year will have passed by the time the internal appeals process and meet and confer process have been completed, thereby precluding binding arbitration. However, this is not entirely accurate. Disputes that encompass claims may be brought one year after Health Net’s notice of a final determination of the internal appeal. (§ 7.6.) Additionally, the meet and confer process requires the parties to participate in an actual meeting between executive level employees with authority to resolve any dispute within 30 days of a written request. (§ 7.5, subd. (i).) The Court additionally notes that Plaintiff only cites to labor and employment cases in support of its argument against a shortened statute of limitations but again offers no evidence or reasoning for its analogy.

Next, Plaintiff argues that the arbitration provision is substantively unconscionable because the arbitrator does not have any authority “to make material errors of law or to award punitive damages or to add to, modify, or refuse to enforce any agreements between the parties.” Plaintiff argues that Defendant’s “general sampling method” to deduct payments to providers may be found to be so outrageous that punitive damages may be appropriate. (Opp., 4:17-28.) This is unpersuasive. The right to punitive damages is statutory and Plaintiff cites no statute allowing it to recover punitive damages in this action for breach of contract and common counts. (See Civ. Code, § 3294, subd. (a) [allowing punitive damages “in an action for the breach of an obligation not arising from contract”].) Therefore, Plaintiff has not met its burden to show that the arbitration provision is substantively unconscionable.

Based on the foregoing, Defendant’s motion is GRANTED. The case is ordered to arbitration and stayed while the arbitration is pending. The Court sets a status conference for September 25, 2023 at 8:30 a.m.

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.

Hon. William A. Crowfoot

Judge of the Superior Court