Cruz v. Pacificare Health Systems, Inc.

• Decision Date: 28 August 2001
• Docket Number: No. A093002.,A093002.
• Citation: 91 Cal.App.4th 1179,111 Cal.Rptr.2d 395
• Court: California Court of Appeals Court of Appeals
• Parties: Jose E. CRUZ et al., Plaintiffs and Respondents, v. PACIFICARE HEALTH SYSTEMS, INC., et al., Defendants and Appellants.

111 Cal.Rptr.2d 395

91 Cal.App.4th 1179

Jose E. CRUZ et al., Plaintiffs and Respondents, v. PACIFICARE HEALTH SYSTEMS, INC., et al., Defendants and Appellants.

No. A093002.

Court of Appeal, First District, Division 2.

August 28, 2001.

Review Granted October 31, 2001.

Cooley, Godward, Martin S. Schenker, San Francisco, William E. Grauer, Christopher R.J. Pace, James V. Fazio, San Diego, for Defendants and Appellants.

The Furth Firm, Frederick P. Furth, Michael P. Lehmann, San Francisco, Ben Furth, for Plaintiffs and Respondents.

KLINE, P.J.

PacifiCare Health Systems, Inc., and its subsidiary, PacifiCare of California (collectively PacifiCare), appeal from an order denying their motion to compel arbitration of the claims asserted in Jose E. Cruz's unfair business practices complaint. PacifiCare contends that all Cruz's claims are subject to arbitration and, in the alternative, if some are not, that judicial proceedings should be stayed pending arbitration of those that are.

FACTUAL AND PROCEDURAL BACKGROUND

Cruz filed a class action against PacifiCare alleging violations of Business and Professions Code sections 17200 (unfair competition) and 17500 (false advertising) and the Consumer Legal Remedies Act (CLRA; Civ.Code, § 1750 et seq.), as well as unjust enrichment. The gravamen of his complaint is that undisclosed financial incentives to PacifiCare's providers significantly reduce the quality of health care its patients receive.

PacifiCare moved to compel arbitration of Cruz's claims pursuant to the arbitration clause in its health plan agreement with his employer¹ and the Federal Arbitration Act (FAA; 9 U.S.C. § 1 et seq.). After a hearing, the trial court denied the motion to compel arbitration. PacifiCare filed a timely notice of appeal (Code Civ. Proc., § 1294, subd. (a)).

DISCUSSION

A. Arbitrability of Claims for Injunctive Relief.

"In enacting § 2 of the [Federal Arbitration] Act,² Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration." (Southland Corp. v. Keating (1984) 465 U.S. 1, 10, 104 S.Ct. 852, 79 L.Ed.2d 1.) The United States Supreme Court "has repeatedly made clear that arbitration may resolve statutory claims as well as those purely contractual if the parties so intend, and that in doing so, the parties do not forego substantive rights, but merely agree to resolve them in a different forum. [Citations.]" (Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 1075, 90 Cal. Rptr.2d 334, 988 P.2d 67. (hereafter Broughton).) However, "That is not to say that all controversies implicating statutory rights are suitable for arbitration." (Mitsubishi Motors v. Soler Chrysler-Plymouth, Inc. (1985) 473 U.S. 614, 627, 105 S.Ct. 3346, 87 L.Ed.2d 444 (hereafter Mitsubishi).) For example, "the United States Supreme Court recognizes an `inherent conflict' exception to the arbitrability of federal statutory claims. [Citation.]" (Broughton, supra, 21 Cal.4th at pp. 1082-1083, 90 Cal.Rptr.2d 334, 988 P.2d 67.) That is, if Congress intended to prohibit waiver of a judicial forum for a particular statutory claim, such an intent will be deducible "from an inherent conflict between arbitration and the statute's underlying purposes." (Shearson/American Express, Inc. v. McMahon (1987) 482 U.S. 220, 227, 107 S.Ct. 2332, 96 L.Ed.2d 185.)

In Broughton, supra, 21 Cal.4th at page 1083, 90 Cal.Rptr.2d 334, 988 P.2d 67, our Supreme Court recognized that the United States Supreme Court's "inherent conflict" cases all concerned federal statutory claims, and thus the inquiry was into the Congressional intent behind those statutes. "But although the court has stated generally that the capacity to withdraw statutory.rights from the scope of arbitration agreements is the prerogative solely of Congress, not state courts or legislatures [citation], it has never directly decided whether a legislature may restrict a private arbitration agreement when it inherently conflicts with a public statutory purpose that transcends private interests." (Ibid.) Accordingly, the Broughton court asked whether there is an inherent conflict between arbitration and the statute at issue there, California's Consumer Legal Remedies Act (id. at p. 1077, 90 Cal. Rptr.2d 334, 988 P.2d 67), and concluded that such a conflict does exist, under certain circumstances, between arbitration and the CLRA's injunctive relief provision (Civ.Code, § 1780, subd. (a)(2)). Specifically, the court held that where a CLRA plaintiff functions as a private attorney general, seeking to enjoin future deceptive practices on behalf of the general public, "arbitration is not a suitable forum, and the Legislature did not intend this type of injunctive relief to be arbitrated." (Broughton, supra, 21 Cal.4th at pp. 1079-1080, 90 Cal.Rptr.2d 334, 988 P.2d 67.) Furthermore, Congress did not contemplate FAA enforcement of public injunction arbitration. (Id. at pp. 1083-1084, 90 Cal.Rptr.2d 334, 988 P.2d 67.) Two factors, taken together, convinced the Broughton court of the inherent conflict between arbitration and the underlying purpose of the CLRA's injunctive relief remedy: First, the relief is for the benefit of the general public rather than the party bringing the action, and second, the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy. (21 Cal.4th at p. 1082, 90 Cal.Rptr.2d 334, 988 P.2d 67.)

The Broughton rationale has since been extended to claims for injunctive relief brought under Business and Professions Code section 17200 (Groom v. Health Net (2000) 82 Cal.App.4th 1189, 1199, 98 Cal. Rptr.2d 836 (hereafter Groom), Coast Plaza Doctors Hospital v. Blue Cross of California (2000) 83 Cal.App.4th 677, 691-692, 99 Cal.Rptr.2d 809 (hereafter Coast Plaza ), Warren-Guthrie v. Health Net (2000) 84 Cal.App.4th 804, 817, 101 Cal.Rptr.2d 260 (hereafter Warren-Guthrie)), and PacifiCare does not dispute that it extends to section 17500 injunctive claims as well.

In this case, the trial court ruled that all Cruz's claims for injunctive relief were inarbitrable under Broughton and Coast Plaza. On appeal, PacifiCare contends that Broughton has been abrogated by the recent United States Supreme Court opinion in Green Tree Financial Corp.-Ala. v. Randolph (2000) 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (hereafter Randolph ). In that case, the court held that an arbitration agreement's silence with respect to payment of arbitration expenses, challenged under the Truth in Lending Act (15 U.S.C. § 1601) and the Equal Credit Opportunity Act (15 U.S.C. §§ 1691-1691f), did not render it unenforceable, because the plaintiff had not met her burden of establishing the likelihood that prohibitive arbitration costs would undermine her ability to vindicate her statutory rights. Thus, the Randolph court considered and resolved an issue entirely different from the one raised here and in Broughton. But PacifiCare focuses on the Randolph court's general statement, "In determining whether statutory claims may be arbitrated, we first ask whether the parties agreed to submit their claims to arbitration, and then ask whether Congress has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue. [Citations.]" (Randolph supra, 531 U.S. at p. 90, 121 S.Ct. 513, italics added; see also id., at pp. 90-91, 121 S.Ct. at p. 522.)

As indicated by the Randolph court's citation to Gilmer v. Interstate/Johnson Lane Corp. (1991) 500 U.S. 20, 26, 111 S.Ct. 1647, 114 L.Ed.2d 26 (hereafter Gilmer), and Mitsubishi supra, 473 U.S. at page 628, 105 S.Ct. 3346 (and as PacifiCare expressly acknowledges), the quoted language does not constitute a new rule of law, but rather reiterates the established rule from which the Broughton court began its analysis. (See, e.g., Broughton, supra, 21 Cal.4th at pp. 1075, 1083, 90 Cal.Rptr.2d 334, 988 P.2d 67, citing Gilmer, Mitsubishi and the "Congressional intent" rule.) The high court, once again considering federal statutory claims, did nothing in Randolph to abrogate either its own "inherent conflict" method for determining Congressional intent, nor the Broughton court's application of that rationale to state statutory claims. (Cf. Nordlinger v. Lynch (1990) 225 Cal.App.3d 1259, 1264-1265, 1274-1275, 275 Cal.Rptr. 684 [California courts bound by state Supreme Court's rejection of federal constitutional challenges to state law absent subsequent United States Supreme Court decision "directly on point"].)³

The trial court properly determined that Cruz's claims for public injunctive relief are inarbitrable under Broughton.

B. Arbitrability of Equitable Monetary Relief.

In addition to injunctive relief, Cruz requested disgorgement (Bus. & Prof.Code, §§ 17203, 17535), restitution (Civ.Code, § 1780, subd. (a)(3)), and disgorgement, restitution, refund, or reimbursement, as a remedy for alleged unjust enrichment.⁴ While "statutory damages claims are fully arbitrable" (Broughton, supra, 21 Cal.4th at p. 1084, 90 Cal. Rptr.2d 334, 988 P.2d 67), the trial court found Cruz's claims for equitable monetary relief were not.

The CLRA expressly distinguishes between damages and restitution. (Civ. Code, § 1780, subds.(a)Q) & (3).) By their terms, Business and Professions Code sections 17203 and 17535 provide for restoration of money acquired by unfair competition and/or false advertising, but damages are not available under either section. (Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163, 173, 96 Cal.Rptr.2d 518, 999 P.2d 706). What is properly sought in a claim labeled "unjust enrichment" is restitution. (Lauriedale Associates, Ltd. v. Wilson (1992) 7 Cal. App.4th 1439, 1448, 9 Cal.Rptr.2d 774.) The trial court found the distinction between damages and restitution determinative, but PacifiCare maintains...