Blue Cross of California v. Superior Court, No. B122446

• Court: California Court of Appeals
• Writing for the Court: TURNER
• Citation: 78 Cal.Rptr.2d 779,67 Cal.App.4th 42
• Parties: , 98 Cal. Daily Op. Serv. 7654, 98 Daily Journal D.A.R. 10,609 BLUE CROSS OF CALIFORNIA et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Elizabeth Farquhar et al., Real Parties in Interest.
• Decision Date: 06 October 1998
• Docket Number: No. B122446

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78 Cal.Rptr.2d 779 67 Cal.App.4th 42, 98 Cal. Daily Op. Serv. 7654, 98 Daily Journal D.A.R. 10,609 BLUE CROSS OF CALIFORNIA et al., Petitioners,
v.
The SUPERIOR COURT of Los Angeles County, Respondent;
Elizabeth Farquhar et al., Real Parties in Interest. No. B122446. Court of Appeal, Second District, Division 5, California. Oct. 6, 1998.
Review Denied Jan. 13, 1999.

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[67 Cal.App.4th 45] Ginsburg, Stephan, Oringher & Richman and Gordon E. Bosserman, Terrence M. King and Gerald J. Miller, Los Angeles, for Petitioners.

No appearance for Respondent.

Ivie, McNeill & Wyatt, Inc., Barry Reed and Jay R. Taylor, Los Angeles, for Real Parties in Interest.

[67 Cal.App.4th 46] TURNER, Presiding Justice.

I. INTRODUCTION

This original writ proceeding presents a question of first impression: whether a California court can, as authorized by state law, order classwide arbitration in a case that falls under the Federal Arbitration Act (the act). (9 U.S.C.A. § 1 et seq.) Stated differently, the issue is whether the act preempts California decisional authority authorizing classwide arbitration. The United States Supreme Court has never reached the question whether the act precludes classwide arbitration under state law. We conclude application of the California classwide arbitration rule is not preempted by the act. Accordingly, we deny the writ petition.

II. BACKGROUND

Two named plaintiffs, Elizabeth Farquhar, and Laurie Winett, brought this class action, against Blue Cross of California and Wellpoint Health Networks, Inc. (collectively, Blue Cross). They alleged Blue Cross had "engaged in a widespread practice of selling and administering health plans which violate laws concerning pre-existing condition exclusions, waiting period exclusions, waivered condition exclusions, and temporary exclusions." Blue Cross answered the complaint alleging, in part, that plaintiffs were required by contract to resolve their claims through binding arbitration.

The arbitration provision in Blue Cross's "Personal Prudent Buyer Classic and Basic Hospital Plan for Families and Individuals" stated: "Any dispute between you and Blue Cross of California and/or its affiliates must be resolved by binding arbitration, if the amount in dispute exceeds the jurisdictional limit of the Small Claims Court. Any such dispute will be resolved not by law or resort to court process, except as California law provides for judicial review of arbitration proceedings. Under this coverage, both you and Blue Cross of California and its affiliates are giving up the right to have any dispute decided in a court of law before a jury." A more extensive arbitration clause was included in Blue Cross's "Prudent Buyer Plan Service Agreement and Combined Evidence of Coverage and Disclosure Form." It stated: "PART VII BINDING ARBITRATION [p] A. Any dispute or claim, of whatever nature, arising out of, in connection with, or in relation to this Agreement or breach thereof, or in relation to care or delivery of care, including any claim based on contract, tort or statute, must be resolved by arbitration if the amount sought exceeds the jurisdictional limit of the small claims court. [p] B. Any [67 Cal.App.4th 47] disputes regarding a claim for damages within the jurisdictional limits of the small claims court will be resolved in such court. [p] C. The arbitration is begun by the Member making written demand on Blue Cross. The arbitration will be conducted by the American Arbitration Association according to its commercial rules of arbitration. The arbitration shall be held in the state of California. [p] D. The Member and Blue Cross agree to be bound by the arbitration provision and acknowledge that they are giving up their right to a trial by court or jury. [p] E. The arbitration findings will be final and binding except to the extent that California

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or Federal law provide for the judicial review of arbitration proceeding."

Blue Cross filed a petition in the trial court to compel arbitration of the individual plaintiffs' claims and to stay the litigation. It argued in part that the act preempted California law as to classwide arbitration. Plaintiffs opposed the petition. They did not dispute that their arbitration agreements were contained in contracts evidencing a transaction involving commerce and therefore within the purview of the act. They argued, however, that California's procedural law concerning the conduct of arbitration was not preempted by the act. The respondent court granted Blue Cross's petition to compel arbitration and to stay judicial proceedings as to the individual plaintiffs, but denied its motion to stay the litigation as a whole. The trial court ordered in part: "The Motion to Stay Judicial Proceedings is denied as to the class claims alleged in the Complaint. Discovery shall continue as to the class claims for purposes of a possible class certification motion and, ... if a class is certified, the class claims will be referred to class-wide arbitration...." The trial court also concluded that "[t]he arbitration provision in issue is one of adhesion, drafted by [Blue Cross]."

Blue Cross then filed the present petition for a writ of mandate, prohibition, or other appropriate relief. Blue Cross contends the act preempts California law allowing for classwide arbitration, therefore the respondent court erred in denying the motion to stay the judicial action as a whole. We issued an order to show cause why the relief prayed for in the petition should not be granted. Blue Cross has not raised any issue in its petition specifically concerning the respondent court's limited discovery order or its finding the arbitration provision was one of adhesion. We do not address those issues because they have not been raised. The sole question before us is whether the act prohibits classwide arbitration in this case.

III. DISCUSSION

A. Ripeness

The parties have not raised any question as to this writ proceeding being premature and we do not conclude that it is. Blue Cross's position is [67 Cal.App.4th 48] that binding arbitration of individual claims was mandated by contract and the act precludes arbitration of class claims under state law; therefore the respondent court should have stayed the entire litigation. Plaintiffs do not claim they are entitled to litigate the class claims in a court action. They assert only that they may arbitrate those claims. To allow discovery to proceed as to the existence of a class if classwide arbitration is not allowed would waste judicial resources and burden the parties with unnecessary expense of time and money. In addition, to defer a decision on this issue would result in "lingering uncertainty in the law." (Pacific Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d 158, 170, 188 Cal.Rptr. 104, 655 P.2d 306.) Therefore, whether the trial court erred in refusing to stay the litigation is an issue that is ripe for resolution. This case does not present an "abstract difference[ ] of legal opinion" for resolution, nor will it result in our issuing a "purely advisory opinion[ ]." (Pacific Legal Foundation v. California Coastal Com., supra, 33 Cal.3d at p. 170, 188 Cal.Rptr. 104, 655 P.2d 306; accord Santa Clara County Local Transportation Authority v. Guardino (1995) 11 Cal.4th 220, 230, 45 Cal.Rptr.2d 207, 902 P.2d 225.) The present case involves concrete issues -- may discovery proceed on whether there should be class certification with the potential that plaintiffs will later be joined in classwide arbitration.

B. The Federal Arbitration Act

The parties agree that the underlying health insurance contracts evidence transactions involving commerce and therefore the arbitration provisions fall within the purview of the act. The act was enacted in 1925 (43 Stat. 883) and codified in 1947. (61 Stat. 669.) It provides in section 2 that a written arbitration provision in a contract "evidencing a transaction involving commerce ... 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.A. § 2; italics added.) Section 4 of the act provides for a petition to compel

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arbitration in "any United States district court" and for the issuance of an order "directing the parties to proceed to arbitration in accordance with the terms of the agreement." (9 U.S.C.A. § 4; italics added.)

The purpose of the act "was to reverse the longstanding judicial hostility to arbitration agreements that had existed at English common law and had been adopted by American courts." (Domke on Commercial Arbitration (Rev. ed. 1997) ch. 4, Statutory Arbitration Law, § 4.04, p. 6, fn. omitted; Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 270-271, 115 S.Ct. 834, 130 L.Ed.2d 753; see Kulukundis Shipping Co. v. Amtorg Trading Corp. (2d Cir.1942) 126 F.2d 978, 982-985 [tracing the history of the judicial attitude towards arbitration that led to the enactment of [67 Cal.App.4th 49] the act]; H.R.Rep. No. 96, 68th Cong., 1st Sess., p. 1 (1924); Sen.Rep. No. 536, 68th Cong., 1st Sess., p. 2 (1924).) A 1924 Senate Report described the "old law": "But it is very old law that the performance of a written agreement to arbitrate would not be enforced in equity, and that if an action at law were brought on the contract containing the agreement to arbitrate, such agreement could not be pleaded in bar of the action; nor would such an agreement be ground for a stay of the proceedings until arbitration was had. Further, the agreement was subject to revocation by either of the parties at any time before the award. With this as the state of the law, such agreements were in large part ineffectual, and the party aggrieved by the refusal of the other party to carry out the arbitration agreement was without adequate remedy. [p] Until recently in England, and up to the present time in nearly, if not quite all, the States of the...