Schwartz v. 4 Ever Life Int'l Ltd.

• Decision Date: 29 June 2021
• Docket Number: No. CV-20-02002-PHX-DJH,CV-20-02002-PHX-DJH
• Parties: Todd Schwartz, Plaintiff, v. 4 Ever Life International Limited, et al., Defendants.
• Court: U.S. District Court — District of Arizona

Todd Schwartz, Plaintiff, v. 4 Ever Life International Limited, et al., Defendants.

No. CV-20-02002-PHX-DJH

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

June 29, 2021

ORDER

Pending before the Court is Defendants 4 Ever Life International Limited, Blue Cross and Blue Shield Association, and Worldwide Insurance Services, LLC's (collectively "Defendants") Motion to Compel Arbitration. (Doc. 21). Plaintiff filed a Response (Doc. 24), and Defendants filed a Reply. (Doc. 25). The matter is fully briefed. The Court now issues its ruling.

I. Background

Plaintiff Todd Schwartz's claims originate from a travel insurance policy his wife, Yoko Nishiguchi, applied for on June 26, 2018. (Doc. 24 at 2). After purchasing a policy online (the "Policy"), Mr. Schwartz suffered an injury overseas. (Doc. 11 at ¶ 11). He filed a claim and later appealed the denial of his claim. (Docs. 24 at 3; 25 at 3). Ultimately, he was denied coverage. He brings three claims against Defendants for breach of contract, bad faith, and aiding and abetting. (Doc. 11). On December 28, 2020, Defendants 4 Ever Life International Limited ("4 Ever Life"), Blue Cross and Blue Shield Association ("BCBS"), and Worldwide Insurance Services, LLC ("Worldwide"), sought to enforce the arbitration clause in the Policy by filing a Motion to Compel Arbitration. (Doc. 21). The parties now dispute whether the Policy's arbitration clause is enforceable. (Docs. 21; 24; 25).

When applying for the Policy online, Mrs. Nishiguchi began by reviewing the benefits and entering the required background and contact information. (Doc. 24 at 2). The website then navigated her to a section titled "Terms of Policy Issuance/Access Agreement." (Doc. 24-2 at 6). In this section, applicants are required to acknowledge and consent to three agreements: Key Plan Provisions, Access Agreement, and Terms of Policy Issuance. (Id.) The Key Plan Provisions require the applicant to certify that the applicant has primary health insurance. (Id.) The Access Agreement sets out terms for use of the website. (Id. at 8). The Terms of Policy Issuance informs the participant who the policy is issued by and states that the quoted price includes a membership fee. (Id. at 6). The website required Nishiguchi to acknowledge and consent to the three agreements before she could "continue to payment." (Id. at 7). None of the agreements contained an arbitration clause. (Doc. 24 at 2). Thus, Mrs. Nishiguchi was not required to read, acknowledge, or agree to an arbitration clause before proceeding to payment. (Id.)

Elsewhere on the site, however, and accessible to Mr. Schwartz and Mrs. Nishiguchi, was a link: "Plan Description download.pdf." (Doc. 24-3 at 2). The link leads to an "Individual Certificate of Coverage [that] describes the main features" of the Policy. (Id. at 4). The Policy names 4 Ever Life as the insurer. (Id. at 5). It names Worldwide as the administrator. (Id.) It also states that 4 Ever and Worldwide are independent licensees of BCBS. (Id.)

The Policy's description entails who is eligible for coverage, how the plan works, what the plan pays, and what the plan does not pay for. (Id. at 4). The last section, "General Provisions," contains instructions on filing claims and appealing coverage decisions. (Id. at 23-24). Under "General Provisions" is a subsection titled "Grievances." (Id. at 23). Under "Grievances" is a subsection titled "Dispute Resolution." (Id. at 25). The third paragraph under this subsection has an arbitration clause. (Id.) It reads as follows:

All grievances not resolved by the Insurer's grievance procedures, and all other controversies and claims arising out of or relating to the Policy, or any coverage provided thereunder, shall be determined by final and binding arbitration administered by the American Arbitration Association ("AAA") under its Commercial Arbitration Rules and Mediation Procedures ("Commercial Rules") . . . The award rendered by the arbitrator shall be final, non-reviewable and non-appealable and binding on the parties and may be entered and enforced in any court having jurisdiction. There shall be one arbitrator agreed to by the parties within twenty (20) days of receipt by respondent of the request for arbitration or in default thereof appointed by the AAA in accordance with its Commercial Rules. The seat or place of arbitration shall be Philadelphia, Pennsylvania.

(Id.)

II. Legal Standard

The Federal Arbitration Act ("FAA"), 9 U.S.C. § 2, states that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." The savings clause of § 2 "permits agreements to arbitrate to be invalidated by generally applicable contract defenses, such as fraud, duress, or unconscionability." AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011) (quoting Doctor's Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996)) (internal quotation marks omitted).

The Supreme Court interprets § 2 as a "congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA "leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed." Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000) (quoting Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 218 (1985)). "The court's role under the [FAA] is therefore limited to determining (1) whether a valid agreement to arbitrate exists and, if it does, (2)whether the agreement encompasses the dispute at issue." Chiron Corp., 207 F.3d at 1130. If both questions yield positive answers, then the FAA "requires the court to enforce the arbitration agreement in accordance with its terms." Id. Accordingly, the Court will begin by evaluating whether the Policy contained a valid arbitration clause.

III. Validity of Arbitration Clause

Mr. Schwartz brings three arguments challenging the validity of the arbitration clause. (Doc. 24). First, he argues he did not agree to arbitration. (Doc. 24 at 9). Second, he claims that the arbitration clause is both procedurally and substantively unconscionable. (Doc. 24 at 12). Third, Mr. Schwartz claims the reasonable expectations doctrine voids the Policy's arbitration clause. (Id.)

a. Mutual Assent

"Arizona law applies to whether a valid arbitration agreement exists." Shelby v. Brookdale Senior Living Inc., 2021 WL 718183, at *1 (D. Ariz. Feb. 24, 2021) (citing Shivkov v. Artex Risk Sols., Inc., 974 F.3d 1051, 1058-59 (9th Cir. 2020)). A contract must "manifest mutual assent, i.e., the parties' intent to be bound." Valdiviezo v. Phelps Dodge Hidalgo Smelter, Inc., 995 F. Supp. 1060, 1064 (D. Ariz. 1997) (citing Keith Equip. Co. v. Casa Grande Cotton Fin., Co., 928 P.2d 683, 685 (Ariz. Ct. App. 1996)). This analysis focuses on objective evidence, not the parties' hidden intent. Silva v. Butori Corp., 2020 WL 2308528, at *4 (D. Ariz. May 8, 2020). "Objective evidence includes written and spoken words as well as acts." Johnson v. Earnhardt's Gilbert Dodge, Inc., 132 P.3d 825, 828 (Ariz. 2006) (citing Corbin-Dykes Elec. Co. v. Burr, 500 P.2d 632, 634 (Ariz. Ct. App. 1972)) (holding that the manifestation of mutual assent "is determined by the words used and the other manifestations of intent having reference to the contract"); see also Restatement (Second) of Contracts § 19(1) ("The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act."). The requirement of mutual assent applies "with no less vigor to formation of arbitration contracts." Silva, 2020 WL 2308528, at *4.

Under the doctrine of separability, "an arbitration provision is considered to be anindependent and separate agreement between the parties to the underlying contract." Stevens/Leinweber/Sullens, Inc. v. Holm Dev. & Mgmt., Inc., 795 P.2d 1308, 1312 (Ariz. Ct. App. 1990); see also Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402 (1967) ("[E]xcept where the parties otherwise intend—arbitration clauses as a matter of federal law are 'separable' from the contracts in which they are imbedded . . . ."). Therefore, "only when the arbitration provision is enforceable will the court compel arbitration." Stevens/Leinweber/Sullens, Inc., 795 P.2d at 1313.

Mr. Schwartz asserts there was no mutual assent to the arbitration clause because neither he nor his wife were required to review and consent to the terms of the Policy before completing the insurance transaction. (Doc. 24 at 8-9). Mr. Schwartz stresses that he received a mailed copy of the Policy after he was injured and filed his insurance claim. (Id. at 9). He does, however, acknowledge that the Policy was available to him to review on the website by selecting the "Plan Description download.pdf" link. (Id. at 2). Mr. Schwartz also argues that, though the Policy describes the coverage, it has no binding language and no signatures to indicate it is a contract. (Id. at 9).

Defendants contend that Mr. Schwartz assented to the Policy's terms by filing an insurance claim. (Doc. 25 at 3). They also contend that Mr. Schwartz assented to the Policy's terms by appealing the denial of his claim using the instructions in the Policy. (Id.) Defendants also note that, in a letter sent by Mr. Schwartz's counsel, he asserted that if the parties could not reach a resolution, "[they] would have no alternative but to pursue arbitration through the AAA." (Id.) This course of action, they argue, shows Mr. Schwartz had agreed to the Plan's terms. Defendants also insist they are not required to ensure that the purchaser of a policy on their website has reviewed and acknowledged that policy's...