Erickson v. Aetna Health Plans of California, Inc.

• Decision Date: 21 April 1999
• Docket Number: No. E021505,E021505
• Citation: 84 Cal.Rptr.2d 76,71 Cal.App.4th 646
• Court: California Court of Appeals Court of Appeals
• Parties: , 99 Cal. Daily Op. Serv. 2923 Donald ERICKSON, Plaintiff and Respondent, v. AETNA HEALTH PLANS OF CALIFORNIA, INC., Defendant and Appellant.

Page 76

84 Cal.Rptr.2d 76

71 Cal.App.4th 646, 99 Cal. Daily Op. Serv. 2923

Donald ERICKSON, Plaintiff and Respondent, v. AETNA HEALTH PLANS OF CALIFORNIA, INC., Defendant and Appellant.

No. E021505.

Court of Appeal, Fourth District, Division 2, California.

April 21, 1999.

Certified for Partial Publication. ^*

Epstein, Becker & Green, William A. Helvestine, Michael T. Horan, San Francisco, and Kevin M. Corbett, San Leandro, for Defendant and Appellant.

Leibovic & Tysch and Gary L. Tysch, Sherman Oaks, for Plaintiff and Respondent.

OPINION

RICHLI, J.

Aetna Health Plans of California, Inc., appeals from the denial of its motion to compel arbitration of claims arising from its alleged failure to provide timely cancer treatment to Donald Erickson under Aetna's Medicare coverage plan. We conclude that: (1) although Aetna's arbitration provision failed to comply with Health and Safety Code section 1363.1, that statute is preempted by the Federal Arbitration Act; and (2) the arbitration provision is not otherwise invalid under general principles of law. Accordingly, we reverse.

I FACTUAL AND PROCEDURAL BACKGROUND

Aetna is a federally qualified health maintenance organization. Pursuant to an agreement with the federal Health Care Financing Administration, Aetna offered replacement Medicare coverage to eligible individuals under a plan called Senior Choice. Mr. Erickson enrolled in Senior Choice in about April 1993.

Among other things, the Senior Choice handbook ¹ set forth the options available to plan members in the event of a dispute. After explaining the procedure for filing a grievance, the handbook stated: "If you are not satisfied with the [grievance panel's] proposed resolution, you may request binding arbitration. [p] If You Want To Have Binding Arbitration [p] Any differences between you and the Health Plan (other than those subject to the Medicare Appeals Procedure) are subject to binding arbitration."

According to his complaint, Mr. Erickson was found to have prostate cancer in 1995. His physician recommended proton beam therapy, and Aetna represented the procedure would be covered. Later, however, Aetna took the position the therapy was not covered. Although Aetna eventually agreed to cover the therapy, the delay increased the risk Mr. Erickson's cancer would metastasize and threaten his life.

Mr. Erickson brought this action in June 1996, alleging that Aetna's conduct breached its agreement with Mr. Erickson and the covenant of good faith contained in that agreement, and also constituted negligence, negligent misrepresentation, infliction of emotional distress, and fraud. Aetna moved to compel arbitration based on the provision in the Senior Choice handbook quoted above. The court denied the motion, ruling that (1) the arbitration clause was not sufficiently clear and unequivocal to be valid under California law, and (2) the clause failed to comply with the disclosure requirements of Health and Safety Code section 1363.1.

II DISCUSSION

A. FAA Preemption of Health and Safety Code Section 1363.1

1. Section 1363.1

Health and Safety Code Section 1363.1 (section 1363.1) provides that a binding arbitration clause in a health care service plan must incorporate various disclosures, including a clear statement of "whether the subscriber or enrollee is waiving his or her right to a jury trial...." The waiver language must be substantially in the wording provided in Code of Civil Procedure section 1295 subdivision (a), ² and must appear immediately before the signature line for the individual enrolling in the plan. (§ 1363.1, subd. (c), (d).)

It is undisputed Aetna's arbitration clause did not comply with these requirements. Accordingly, if section 1363.1 applies, the clause is invalid. ³

2. The FAA

The Federal Arbitration Act (FAA), Title 9 U.S.C. section 1 et seq., applies to any "contract evidencing a transaction involving commerce" which contains an arbitration clause. (9 U.S.C. § 2.) Section 2 of the FAA (section 2) provides that arbitration provisions "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. § 2.) State courts may, without violating section 2, decline to enforce arbitration clauses on the basis of "generally applicable contract defenses, such as fraud, duress or unconscionability." However, they may not do so on the basis of "state laws applicable only to arbitration provisions." (Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687 [116 S.Ct. 1652, 1656, 134 L.Ed.2d 902].)

3. Preservation of Preemption Issue in Lower Court ^**

4. Interstate Commerce

"Commerce" for purposes of FAA coverage "is to be broadly construed so as to be coextensive with congressional power to regulate under the Commerce Clause." (Foster v. Turley (10th Cir.1986) 808 F.2d 38, 40; accord, Willis v. Dean Witter Reynolds, Inc. (6th Cir.1991) 948 F.2d 305, 310.) In an analogous context, it has been held that a health care provider's treatment of Medicare patients, receipt of reimbursement from Medicare, and purchase of out-of-state medicines and supplies constitutes being engaged in interstate commerce for purposes of the Sherman Act. (See, e.g., Summit Health, Ltd. v. Pinhas (1991) 500 U.S. 322, 329, 111 S.Ct. 1842, 1847, 114 L.Ed.2d 366; BCB Anesthesia Care, Ltd. v. Passavant Memorial Area Hospital Assn. (7th Cir.1994) 36 F.3d 664, 666; Brown v. Our Lady of Lourdes Medical Center (D.N.J.1991) 767 F.Supp. 618, 626.)

Here, as stated, the Senior Choice plan replaces Medicare coverage and operates pursuant to a contract with the federal government. Coverage is available only to Medicare patients; the patients pay for coverage through Social Security deductions or payments to Medicare. Additionally, according to Aetna's Medicare compliance manager, Aetna in performing its Medicare contract enters into interstate contracts with vendors and service providers operating on a national basis.

None of this evidence was disputed, nor does the record suggest any credibility issues or other factual conflicts which the court had to resolve in ruling that the Senior Choice plan did not involve interstate commerce. Reviewing the ruling independently as a question of law (see Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799, 35 Cal.Rptr.2d 418, 883 P.2d 960), we therefore conclude the plan involves interstate commerce and is subject to the preemption provision of the FAA. The remaining question is whether section 1363.1 is inconsistent with that provision.

5. Preemption of Section 1363.1

In Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. 681, 116 S.Ct. 1652, 134 L.Ed.2d 902, the United States Supreme Court held the FAA preempted a Montana statute which required that an arbitration clause be typed in underlined capital letters on the first page of a contract in order to be enforceable. The court stated section 2 of the FAA precludes states from "singling out arbitration provisions for suspect status." It concluded the Montana law directly conflicted with section 2 by conditioning the enforceability of arbitration agreements "on compliance with a special notice requirement not applicable to contracts generally." (Doctor's Associates, Inc., supra, at p. 687, 116 S.Ct. 1652.)

Section 1363.1 similarly imposes on arbitration clauses in health care plans "a special notice requirement not applicable to contracts generally." Health care arbitration clauses must satisfy special requirements as to form and content which are not imposed on contracts generally, nor even on health care contracts generally unless they contain arbitration clauses. Section 1363.1 thus " 'takes its meaning precisely from the fact that a contract to arbitrate is at issue ...,' " and, consequently, conflicts with section 2 of the FAA. (Doctor's Associates, Inc. v. Casarotto, supra, 517 U.S. 681, 685, 116 S.Ct. 1652, 134 L.Ed.2d 902.) Section 1363.1 therefore is preempted as applied to the Senior Choice plan arbitration clause, and the lower court's refusal to enforce the clause can be upheld, if at all, only on the basis of generally applicable California law.

B. Validity of Arbitration Clause Under General Principles of Law

Mr. Erickson offers three generally applicable legal principles in support of the lower court's refusal to enforce the arbitration clause: first, that the Senior Choice plan is a contract of adhesion and the clause therefore cannot be enforced absent a showing that the plan member has been made aware of its existence and implications; second, that the language of the clause is too misleading to be valid even under the standards for nonadhesive contracts; and, third, that Mr. Erickson's mistaken interpretation of the clause prevented mutual assent, so that no agreement to arbitrate was formed. We discuss each contention in order.

1. Contract of Adhesion

Although normally a party to a contract is bound by its provisions whether or not he or she is aware of them, courts will not enforce provisions in adhesion contracts which favor the stronger party unless they are conspicuous, clear, and not inconsistent with the parties' reasonable expectations. (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 710, 131 Cal.Rptr. 882, 552 P.2d 1178.) We reject Mr. Erickson's argument that the Senior Choice arbitration clause should be governed by these principles, for several reasons.

First, Mr. Erickson did not make the adhesion argument in the lower court, and, as he recognizes, the court did not rule on the issue. Although an appellate court can affirm a ruling on a ground not adopted by the trial court, it should not do so where the alternative ground presents fact issues which the opposing party and trial court did not have an opportunity to address. (Rutan v. Summit Sports, Inc. (1985) 173 Cal.App.3d 965, 974, 219 Cal.Rptr. 381; In re Marriage of Moschetta (1994) 25 Cal.App.4th 1218, 1227, 30 Cal.Rptr.2d 893.)

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