Cruz v. PacifiCare Health Systems, Inc.

• Decision Date: 24 April 2003
• Docket Number: No. S101003.,S101003.
• Citation: 66 P.3d 1157,133 Cal.Rptr.2d 58,30 Cal.4th 303
• Parties: Jose E. CRUZ et al., Plaintiffs and Respondents, v. PACIFICARE HEALTH SYSTEMS, INC., et al., Defendants and Appellants.
• Court: California Supreme Court

133 Cal.Rptr.2d 58

30 Cal.4th 303

66 P.3d 1157

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

No. S101003.

Supreme Court of California.

April 24, 2003.

Rehearing Denied May 21, 2003.

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

Fred Main; Wiggin & Dana, Mark R. Kravitz and Jonathan Freiman for California Chamber of Commerce as Amicus Curiae on behalf of Defendants and Appellants.

Epstein Becker & Green, William A. Helvestine and Michael Horan, San Francisco, for American Association of Health Plans and California Association of Health Plans as Amici Curiae on behalf of Defendants and Appellants.

McDermott, Will & Emery, Elizabeth D. Mann, Michael L. Meeks and Sarah A. Sommer for American Specialty Health Plans of California, Inc., and American Specialty Health Networks, Inc., as Amici Curiae on behalf of Defendants and Appellants.

Severson & Werson and William L. Stern, San Francisco, for California Bankers Association, Securities Industry Association, California Financial Services Association and American Financial Services Association as Amici Curiae on behalf of Defendants and Appellants.

Gibson, Dunn & Crutcher, Gail E. Lees, Los Angeles, and Mark A. Perry for Aetna Health, AT & T Wireless Services, Cingular Wireless, Sprint and Verizon Wireless as Amici Curiae on behalf of Defendants and Appellants.

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

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Herschel T. Elkins, Assistant Attorney General, Ronald A. Reiter and Michele R. Van Gelderen, Deputy Attorneys General, as Amici Curiae on behalf of Plaintiffs and Respondents.

Robinson, Calcagnie & Robinson, Sharon J. Arkin, Newport Beach; The Sturdevant Law Firm, James C. Sturdevant, San Francisco; Paul Bland; Deborah M. Zuckerman and Stacy J. Canan for Trial Lawyers for Public Justice, AARP, National Association of Consumer Advocates and Consumer Attorneys of California as Amici Curiae on behalf of Plaintiffs and Respondents.

MORENO, J.

In Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67 (Broughton), we held that claims for injunctive relief under the Consumers Legal Remedies Act (CLRA) designed to protect the public from deceptive business practices were not subject to arbitration. In this case, we consider whether Broughton is good law in light of two recent United States Supreme Court cases pertaining to arbitration, Green Tree Fin. Corp.-Ala. v. Randolph (2000) 531 U.S. 79, 121 S.Ct. 513, 148 L.Ed.2d 373 (Green-Tree) and Circuit City Stores, Inc. v. Adams (2001) 532 U.S. 105,121 S.Ct. 1302, 149 L.Ed.2d 234 (Circuit City). We conclude that it is.

We also consider whether Broughton's holding on the inarbitrability of CLRA public injunctions should be extended to include claims to enjoin unfair competition under Business and Professions Code section 17200 et seq. and to enjoin misleading advertising under Business and Professions Code section 17500 et seq. We conclude that Broughton should be extended to such claims, at least under the circumstances of the present case.

We further consider whether Broughton should be extended to statutory and common law claims for equitable monetary relief for restitution, disgorgement, and unjust enrichment. We conclude that Broughton should not be thus extended.

I. Statement of Facts

In November 1999, plaintiff Jose E. Cruz filed an action against defendants PacifiCare Health Systems, Inc., and PacifiCare of California, Inc. (collectively PacifiCare), alleging claims for unfair competition and false advertising in connection with PacifiCare's sale, marketing, and rendering of medical services. In his first amended complaint, Cruz alleged that he was an enrollee in one of the various health plans PacifiCare offers and operates in California. He also alleged that "through its misleading and deceptive material representations and omissions," PacifiCare has employed a "fraudulent, unlawful, and/or unfair scheme designed to induce" persons to enroll in its health plans by "misrepresenting ... that its primary commitment ... is to maintain and improve the quality of healthcare provided." In fact, Cruz alleged, PacifiCare "has been aggressively engaged in implementing undisclosed systemic internal policies that are designed, inter alia, to discourage PacifiCare's primary care physicians from delivering medical services and to interfere with the medical judgment of PacifiCare healthcare providers." The result of these policies, he alleged, is a "reduction in the quality of [provided] healthcare" that "is directly contrary to PacifiCare's representations."

Cruz emphasized in his first amended complaint that he "does not challenge the denial of medical benefits to any enrollee or subscriber," but "challenges the manner in which PacifiCare ... induced persons to subscribe to its Health Plans ... by misrepresenting or failing to disclose internal policies that lower the quality of services provided." Cruz alleged that he was filing the action "in his individual capacity and on behalf of the general public," and he sought to represent a class of "approximately 1.6 million PacifiCare Health Plan enrollees in California."

Based on these general allegations, Cruz alleged four causes of action. In the first, he alleged that PacifiCare had violated Business and Professions Code section 17500 by "engaging in false advertising" that "reduce[d] the quality of medical services available to . . . enrollees" and "decrease[d] the value of the [health coverage] for which [they] paid." To remedy this alleged violation, Cruz requested "an order enjoining [PacifiCare] from violating [Business and Professions Code section] 17500 and requiring [it] to disgorge ... all of [its] ill-gotten gains and monies wrongfully acquired." The second cause of action alleged that in violating various state statutes, PacifiCare had committed an unfair, unlawful, or fraudulent business act or practice under Business and Professions Code section 17200 that "reduce[d] the quality of medical services available to" enrollees and "decrease[d] the value of their respective [h]ealth [p]lans." To remedy his alleged violation, Cruz requested "an order enjoining [PacifiCare] from violating [Business and Professions Code section] 17200 and requiring [it] to disgorge ... all of [its] ill-gotten gains and monies wrongfully acquired." The third cause of action alleged that PacifiCare's misrepresentations violated the CLRA (Civ.Code, § 1770). To remedy this alleged violation, Cruz requested "an order enjoining [PacifiCare's] wrongful acts and practices" and requiring that PacifiCare "make restitution ... of all monies paid to" it. Cruz also stated his intent to add a request for actual damages if PacifiCare failed to remedy the damage from its violation. The fourth cause of action was for unjust enrichment, and alleged that as a result of PacifiCare's conduct, enrollees had "receiv[ed] a lower quality of care than advertised and represented by" PacifiCare. As to remedy, Cruz requested "restitution, refund, or reimbursement of certain monies paid by or on behalf of enrollees, and "disgorgement of the excessive and ill-gotten monies obtained by [PacifiCare] as a result of the unlawful, fraudulent, or unfair business acts and practices and untrue and misleading advertisements."

PacifiCare moved for an order compelling Cruz to arbitrate his claims and staying the action pending completion of arbitration. PacifiCare argued that Cruz, who obtained health coverage through his employer, was required to arbitrate his claims under several provisions of the subscriber agreement between his employer and PacifiCare. PacifiCare relied primarily on paragraph 15.02 of the subscriber agreement, which provides in part: "ABITRATION. PACIFICARE USES BINDING ARBITRATION TO RESOLVE ANY AND ALL DISPUTES BETWEEN PACIFICARE AND GROUP OR MEMBER, INCLUDING ... DISPUTES RELATING TO THE DELIVERY OF SERVICES UNDER THE PACIFICARE HEALTH PLAN. PACIFICARE, GROUP AND MEMBER EACH UNDERSTAND AND EXPRESSLY AGREE THAT BY ENTERING INTO THE PACIFICARE SUBSCRIBER AGREEMENT, PACIFICARE, GROUP AND MEMBER ARE EACH VOLUNTARILY GIVING UP THEIR CONSTITUTIONAL RIGHT TO HAVE ALL SUCH DISPUTES DECIDED IN A COURT OF LAW BEFORE A JURY, AND INSTEAD ARE ACCEPTING THE USE OF BINDING ARBITRATION." PacifiCare also relied on paragraph 7.01.01 of the subscriber agreement, which establishes a procedure for "Member Appeals not related to quality of care" and provides that a member who is not satisfied with the outcome of PacifiCare's internal appeals process "may ... submit or request that PacifiCare submit the Appeal to binding arbitration before the American Arbitration Association" (AAA). Paragraph 7.01.01 also provides: "Upon submission of a dispute to the [AAA], Member and PacifiCare agree to be bound by the rules of procedure and decision of the [AAA]." Paragraph 7.01.01 concludes by stating: "PACIFICARE AND MEMBER UNDERSTAND THAT BY ENTERING INTO THIS AGREEMENT, THEY ARE GIVING UP THEIR CONSTITUTIONAL RIGHT TO HAVE ANY DISPUTE DECIDED IN A COURT OF LAW BEFORE A JURY AND INSTEAD ARE ACCEPTING THE USE OF ARBITRATION.' PacifiCare also relied on Cruz's signed enrollment form, which stated that he "agree[d] to and understood]" several terms and conditions, including: (1) "To be bound by the PacifiCare ... Subscriber Agreement"; and (2) that "[a]ny differences between myself ... and PacifiCare ... relating to PacifiCare ... or its performance are subject to binding arbitration." Finally, PacifiCare relied on the member handbook it sent to Cruz, which describes PacifiCare's internal appeals process and, for members unsatisfied with the result of...