Malek v. Blue Cross of California

• Decision Date: 29 July 2004
• Docket Number: No. B168146.,B168146.
• Citation: 121 Cal.App.4th 44,16 Cal.Rptr.3d 687
• Court: California Court of Appeals Court of Appeals
• Parties: Suzanne MALEK et al., Plaintiffs and Appellants, v. BLUE CROSS OF CALIFORNIA, Defendant and Appellant.

16 Cal.Rptr.3d 687

121 Cal.App.4th 44

Suzanne MALEK et al., Plaintiffs and Appellants, v. BLUE CROSS OF CALIFORNIA, Defendant and Appellant.

No. B168146.

Court of Appeal, Second District, Division 3.

July 29, 2004.

Appeal from the Superior Court, Los Angeles County, No. BC217878, Marvin M. Lager, J Law Office of Mark F. Didak and Mark F. Didak, Los Angeles, for Plaintiffs and Appellants Suzanne and Michael Malek.

Stephan, Oringher, Richman & Theodora, Gordon E. Bosserman, Los Angeles, Robert M. Dato, Costa Mesa and Terrence M. King, Los Angeles, for Defendant and Appellant Blue Cross of California.

CROSKEY, J.

In this appeal, we must determine the consequences of failing to comply with the arbitration disclosure requirements of Health & Safety Code section 1363.1.¹ That statute requires health care service plans to disclose in clear and understandable language, appearing "as a separate article" and "prominently displayed on the enrollment form" "immediately before the signature line" that the plan requires binding arbitration of any dispute, and that both parties are giving up their constitutional right to have the dispute decided in a court of law. Blue Cross's enrollment form violated section 1363.1 because the arbitration provision was not prominently displayed immediately before the signature line. Despite these violations, the trial court initially concluded that section 1363.1 was preempted by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) and granted Blue Cross's petition to compel arbitration. Almost three years later, the trial court reconsidered its ruling based on our decision in Smith v. PacifiCare Behavioral Health of Cal., Inc. (2001) 93 Cal.App.4th 139, 113 Cal.Rptr.2d 140, cert den. (2002) 537 U.S. 818, 123 S.Ct. 92, 154 L.Ed.2d 23 (Smith), and thereafter denied the petition to compel arbitration.

Though both parties raise procedural challenges to the trial court's orders, we are principally concerned with whether the technical violations of Blue Cross's enrollment form render its arbitration provision unenforceable. Our decision in Smith did not so hold, but Imbler v. PacifiCare of Cal., Inc. (2002) 103 Cal.App.4th 567, 126 Cal.Rptr.2d 715 (Imbler), does. In that case, the court concluded that strict compliance with section 1363.1 is required to enforce the arbitration provision. We agree with the Imbler court. A violation of section 1363.1 renders a contractually binding arbitration provision in a health service plan enrollment form unenforceable. Although we do not foreclose the possibility that under the appropriate circumstances the doctrine of substantial compliance might apply, we conclude that the Blue Cross enrollment form at issue here does not substantially comply with section 1363.1. We therefore affirm the trial court's order denying the petition to compel arbitration, along with its challenged orders vacating the arbitrator's award and vacating its original decision to grant the petition to compel arbitration.

FACTUAL AND PROCEDURAL BACKGROUND

Our recitation of the factual and procedural aspects of this appeal is limited to those necessary for the resolution of the legal issues before us. Suffice it to say, Suzanne and Michael Malek (the Maleks) did not want to arbitrate this dispute and relentlessly attacked the trial court's order compelling them to do so. Three years after that order, the parties are back in court. Obviously, the "simplicity, informality, and expedition of arbitration," alluded the parties here.

1. The Blue Cross Enrollment Form Contained an Arbitration Provision

In 1996 and 1997, the Maleks enrolled in Blue Cross health care plans. The Maleks each signed an enrollment form that contained an arbitration provision (collectively, enrollment form).² The arbitration provision appears at the bottom of the one-page enrollment form. It is the second provision in the text at the bottom of the enrollment form and follows the section entitled "deduction authorization." Following the arbitration provision are additional sections entitled, "to non-participating provider," "declining coverage," and "authorization to obtain or release medical information." These section headings are in bold and capitalized letters. The text follows each section heading and is set in three columns. The arbitration provision is in the first column on the left-hand side of the enrollment form. The signature block is in the bottom right-hand side of the form, appearing below the authorization for the release of medical information.

Before the Maleks initiated this lawsuit, they also received finalized Evidences of Coverage (EOC), which set forth the terms and conditions of their Blue Cross group health care coverage. These EOC's contained arbitration provisions. The Maleks also received numerous letters from Blue Cross, and explanation of benefits forms, all of which advised them of their arbitration requirement.

2. The Maleks' Complaint and Blue Cross's Petition to Compel Arbitration

In October 1999, the Maleks filed a complaint alleging numerous causes of action against defendant Blue Cross and five other named defendants, who are not subject to this appeal, based on Blue Cross's allegedly improper denial of benefits for infertility treatment.

On November 18, 1999, Blue Cross filed a notice of petition and petition to compel arbitration and for stay of proceedings (hereafter petition). After supplemental briefing, on June 28, 2000, the trial court granted Blue Cross's petition to compel arbitration (June order). The trial court concluded that the Maleks' enrollment form constituted an arbitration agreement covered under the FAA.³ Although the arbitration provision in the enrollment form did not meet the disclosure requirements of section 1363.1, the trial court concluded that based on Erickson v. Aetna Health Plans of California, Inc. (1999) 71 Cal. App.4th 646, 651-652, 84 Cal.Rptr.2d 76, the FAA preempted those requirements. Therefore, the trial court granted Blue Cross's petition, with the exception of the Maleks' injunctive relief claim brought under the Consumer Legal Remedies Act (CLRA).

In October 2000, the trial court appointed an arbitrator. After the arbitration proceedings commenced, the Maleks filed an amended complaint against Blue Cross, which included, among other things, an additional claim for injunctive relief, restitution, and disgorgement on behalf of the public under Business and Professions Code section 17200(UCL).

On April 1, 2002, the arbitrator ruled that he had jurisdiction over the Maleks' individual statutory claims under the UCL and CLRA for monetary relief but did not have jurisdiction to hear the "private attorney general" claims under those statutes.

3. The Maleks Attempted to Vacate the Trial Court's Order Compelling Arbitration based on Smith⁴

In October 2002, the Maleks moved to vacate the trial court's June order compelling arbitration based upon our decision in Smith, supra, 93 Cal.App.4th 139, 113 Cal. Rptr.2d 140. The trial court denied the motion because it lacked jurisdiction to consider the matter.

4. The Arbitrator Dismissed the Arbitration based on Smith and its Progeny

The Maleks then filed their motion to dismiss the arbitration before the arbitrator. The motion was based on the grounds that Smith and its progeny, Pagarigan v. Superior Court (2002) 102 Cal.App.4th 1121, 126 Cal.Rptr.2d 124, and Imbler, supra, 103 Cal.App.4th 567, 126 Cal.Rptr.2d 715, required dismissal for, among other things, failure to comply with the disclosure requirements of section 1363.1. Blue Cross opposed the motion on the grounds that the arbitrator could not, in essence, reverse the trial court's order finding the existence of a valid arbitration agreement and compelling arbitration. The arbitrator granted the motion.⁵

5. Blue Cross Filed a Petition to Vacate the Arbitrator's Award

On March 17, 2003, Blue Cross filed a petition to vacate the arbitrator's decision to dismiss the arbitration on the grounds that the arbitrator exceeded his powers under the arbitration agreement. The Maleks opposed the petition arguing that Blue Cross had agreed that the arbitrator could decide jurisdictional issues, that the decision was correct, and that since the arbitrator's decision was legally correct, it could not be vacated.

The trial court concluded that the arbitrator's dismissal order was an award, and thereafter opted to exercise its limited jurisdiction under Code of Civil Procedure section 1285 to vacate the award. In so ruling, the trial court concluded that the arbitrator exceeded his power by making the determination that he lacked jurisdiction to proceed with the arbitration.

Having vacated the arbitration award, the trial court issued an order to show cause based on Code of Civil Procedure section 1008, subdivision (c), in which it noticed the parties that it intended to reconsider its June order to grant Blue Cross's petition to compel arbitration. The trial court's order to show cause was based on a change in the law. The court reasoned that Erickson v. Aetna Health Plans of Cal., supra, 71 Cal.App.4th 646, 84 Cal.Rptr.2d 76, the case upon which it had originally relied in its order to compel arbitration, had been overturned by Smith and its progeny. Following a hearing on the issue, the trial court, citing our opinion in Blake v. Ecker (2001) 93 Cal.App.4th 728, 113 Cal.Rptr.2d 422, concluded that it would be error for it not to reconsider its prior order in view of the change in the law. Thereafter, the trial court entered a different order denying Blue Cross's petition to compel arbitration. These appeals followed.

THE PARTIES' CONTENTIONS

Both the Maleks and Blue Cross challenge the trial court's orders.

The Maleks attack the trial court's decision to vacate the arbitration award. They contend that the trial court erred in vacating, as opposed to confirming, the award under Code of Civil Procedure section 1286.2,...