Carter v. Health Net of California, Inc.

• Citation: 374 F.3d 830
• Decision Date: 06 July 2004
• Docket Number: No. 03-15544.,03-15544.
• Parties: Donald CARTER; Kathryn S. Carter, Plaintiffs-Appellants, v. HEALTH NET OF CALIFORNIA, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

374 F.3d 830

Donald CARTER; Kathryn S. Carter, Plaintiffs-Appellants, v. HEALTH NET OF CALIFORNIA, INC., Defendant-Appellee.

No. 03-15544.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted May 12, 2004.

Filed July 6, 2004.

Jeffrey H. Ochrach, Roseville, CA, for the plaintiffs-appellants.

Lawrence J. Rose, Epstein Becker & Green, San Francisco, CA, for the defendant-appellee.

Appeal from the United States District Court for the Eastern District of California; Garland E. Burrell, District Judge, Presiding. D.C. No. CV-02-02455-GEB(JFM).

Before: B. FLETCHER, TROTT, and FISHER, Circuit Judges.

BETTY B. FLETCHER, Circuit Judge.

Donald Carter ("Carter") and his daughter Kathryn Carter ("Katie") appeal the district court's order vacating an arbitration award against Health Net of California ("Health Net"), an insurance company, on the ground that the arbitrator did not have jurisdiction over Health Net. The Carters argue that the district court lacked subject-matter jurisdiction over the opposing petitions to vacate and confirm the arbitration award because neither presented a federal question. We agree, and remand this case to the district court for remand to state court.¹

I.

On a Member Enrollment and Change Form provided by his employer, Grafil, Inc., Donald Carter selected the Preferred Provider Organization (PPO) insurance product as his employer-sponsored health insurance plan. The header of the form included the logo "Health Net: California's Health Plan," while the fine print on the form stated that Health Net Life Insurance ("HNL") would be the underwriter for the Flex Net and PPO insurance plans, and Health Net would underwrite the other plans. The form also included a mandatory arbitration clause requiring each employee-signatory to submit to arbitration any dispute, except medical malpractice, "regarding the performance, interpretation or breach of the agreement between [him or an enrolled family member]" and Health Net, HNL, or physicians participating in the plan. HNL is a wholly-owned subsidiary of Health Net,² and under an Administrative Services Agreement, HNL retained Health Net to serve as the contract administrator for the PPO plan.

As a result of Carter's selection of the PPO plan, HNL issued a Certificate of Insurance ("Certificate") outlining the coverage provided by the insurance plan. The Certificate stated, inter alia, that "HNL ... agrees to provide benefits as described in this Certificate to the Subscriber and eligible Family Members." With regard to arbitration, it stated that "any dispute or controversy concerning the construction, interpretation, performance, or breach of this Certificate arising between the Employer, a Subscriber or eligible Family Member ... and HNL ... shall be submitted to arbitration under the appropriate rules of the American Arbitration Association," and that the arbitral award "shall be governed by applicable state and federal statutory and case law."

Six months after selecting the PPO plan, Carter asked for a pre-determination of medical insurance benefits for dental surgery proposed for his daughter, Katie. The request was submitted to Health Net as plan administrator. Health Net determined that no medical benefits were available for Katie's jawbone reconstructive surgery. After an appeal by the Carters, Health Net issued its final decision denying coverage for Katie's treatment. In both communications, Health Net reminded Carter that his sole recourse was arbitration of his claim through the American Arbitration Association (AAA).

The Carters initiated arbitration to recover the cost of Katie's surgery. Though their initial Demand for Arbitration named only Health Net as a defendant, they later asked to amend the Demand to add HNL as a new defendant. The arbitrator granted the request, but subsequently reversed the decision when the Carters withdrew their request to add HNL. HNL was dismissed without prejudice, over its protests that "it was the real party in interest, in that it was the party in contractual privity with claimant's employer, and the underwriter for the employer's medical benefits plan," and the arbitration proceeded against Health Net alone.

The arbitrator issued interim and final awards in favor of the Carters. The Carters filed a petition in California Superior Court under the California Arbitration Act, CAL. CIV. PROC. CODE § 1280 et seq., to confirm the arbitration award against Health Net, and requested attorney's fees "incurred in relation to this petition pursuant to the applicable provisions of ERISA." Health Net removed the case to federal court, where the Carters' motion to remand to state court was denied. Health Net then petitioned to vacate the arbitration award, also under the California Arbitration Act, on the grounds that the arbitrator had exceeded his authority, had refused to hear material evidence, and had failed to disqualify himself for appearance of bias. Citing American Builder's Ass'n v. Au-Yang, 226 Cal.App.3d 170, 276 Cal.Rptr. 262 (Ct.App.1990), the district court sua sponte requested briefing on the issue of whether the arbitrator had jurisdiction over the parties to the arbitration. In its final order, the court vacated the arbitration award, holding that the arbitrator had exceeded his powers by exercising jurisdiction over and issuing an award against Health Net, because it was not a signatory to the arbitration agreement contained in the Certificate of Insurance. The Carters filed a timely notice of appeal.

II.

We review decisions on subject matter jurisdiction de novo. Arizona Pub. Serv. Co. v. Aspaas, 77 F.3d 1128, 1132 (9th Cir.1995). It is well-established that even when a petition is brought under the Federal Arbitration Act (FAA), a petitioner seeking to confirm or vacate an arbitration award in federal court must establish an independent basis for federal jurisdiction. Southland Corp. v. Keating, 465 U.S. 1, 15 n. 9, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (noting that "[w]hile the Federal Arbitration Act creates federal substantive law requiring the parties to honor arbitration agreements, it does not create any independent federal-question jurisdiction"); Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983) (same); Garrett v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 882, 883-84 (9th Cir.1993) (discussing Supreme Court cases and collecting Ninth Circuit precedent and cases from other circuits applying this jurisdictional principle). In this case, where the petitions to confirm and vacate the arbitration award are brought under a state arbitration statute, it is even clearer that the parties must establish either diversity or federal question jurisdiction before a federal court may hear their claims.

Diversity of citizenship is absent in this case: the Carters are residents of California, and Health Net is a California corporation. Thus, in order for the district court to have exercised valid jurisdiction over the case, the petitions must have presented a federal question. Health Net offers two arguments in support of its assertion that the district court had federal question jurisdiction: first, that the Carters made a specific request for affirmative relief under ERISA by requesting attorney's fees under § 502(g)(1) of that statute, 29 U.S.C. § 1132(g)(1); and second, that the Carters asserted claims of a uniquely federal character in the underlying dispute.

A request for attorney's fees cannot be a basis for federal jurisdiction. Section 502(g)(1) is a classic fee-shifting provision, similar to that invoked in cases brought under 42 U.S.C. § 1983. Compare 29 U.S.C. § 1132(g)(1) ("In any action under this title ... the court in its discretion may allow a reasonable attorney's fee and costs of action to either party."), with 42 U.S.C. § 1988(b) ("In any action or proceeding to enforce a provision of section[]... 1983 ... the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs...."). We have previously held that "`fee shifting provisions cannot themselves confer subject matter jurisdiction' that is otherwise absent." In re Knight, 207 F.3d 1115, 1117 (9th Cir.2000) (quoting Branson v. Nott, 62 F.3d 287, 293 (9th Cir.1995), and extending Branson's § 1983-related holding to requests for attorney's fees under § 502(g)(1) of ERISA).

The valid exercise of federal question jurisdiction therefore depended upon the substantive claims raised in the Carters' petition to confirm the award. If the district court lacked subject matter jurisdiction over the petition, it could not have exercised jurisdiction based on the request for fees. See id. at 1119. On its face, the Carters' petition raised no federal question, relying instead on California arbitration law as the basis for confirmation. Apart from the invocation of ERISA's fee-shifting provision discussed above, the only federal claims involved in the case were those raised in the underlying arbitration.

Health Net's second argument supporting jurisdiction, based on the "uniquely federal character" of those claims, is also unpersuasive. Since no case in this circuit has discussed federal question jurisdiction in the context of a state arbitration statute, we must look to cases analyzing federal statutes governing arbitration. The parties offer two choices: the Labor Management Relations Act (LMRA), and the FAA. For the reasons set forth below, we find the cases construing the FAA persuasive, and extend their reasoning to petitions brought under state arbitration statutes.

In Johnson v. England, a case relied upon by Health Net, we held that an action to compel arbitration of a labor contract dispute was within federal jurisdiction under the LMRA, and therefore removable under 28 U.S.C. § 1441. 356 F.2d 44, 46-48 (9th Cir.1966). We specifically rejected the appellants'...