Ufcw & Emp'rs Benefit Trust v. Sutter Health, A143399

• Court: California Court of Appeals
• Writing for the Court: BRUINIERS, J.
• Citation: 241 Cal.App.4th 909,194 Cal.Rptr.3d 190
• Parties: UFCW & EMPLOYERS BENEFIT TRUST, Plaintiff and Respondent, v. SUTTER HEALTH et al., Defendants and Appellants.
• Docket Number: A143399
• Decision Date: 27 October 2015

241 Cal.App.4th 909
194 Cal.Rptr.3d 190

UFCW & EMPLOYERS BENEFIT TRUST, Plaintiff and Respondent,
v.
SUTTER HEALTH et al., Defendants and Appellants.

A143399

Court of Appeal, First District, Division 5, California.

Filed 10/27/2015

Jones Day, Craig E. Stewart, Matthew J. Silveira, San Francisco, Jeffrey A. LeVee, Los Angeles; Quinn Emanuel Urquhart & Sullivan and John M. Potter, San Francisco, for Defendants and Appellants.

Hooper, Lundy & Bookman, James F. Segrovesand Glenn E. Solomon, Los Angeles, for California Hospital Association as Amicus Curiae on behalf of Defendants and Appellants.

Pillsbury & Coleman, Richard L. Grossman, San Francisco; Farella Braun + Martel, John L. Cooper, Roderick M. Thompson, Christopher C. Wheeler, San Francisco; Cohen Milstein Sellers & Toll, Kit A. Pierson, Daniel A. Small, Laura M. Alexander; Davis Cowell & Bowe, Steven L. Stemermanand Elizabeth A. Lawrence, San Francisco, for Plaintiff and Respondent.

Mayer Brown, Robert E. Bloch and Christopher J. Kelly, Palo Alto, for California Physicians' Service as Amicus Curiae on behalf of Plaintiff and Respondent.

Opinion

BRUINIERS, J.

241 Cal.App.4th 914

Respondent UFCW & Employers Benefit Trust (UEBT) is a healthcare employee benefits trust governed by the Employee Retirement Income Security Act of 1974 (ERISA) (29 U.S.C. § 1001 et seq.). (Id.,§ 1144(b)(2).) UEBT pays healthcare providers directly from its own funds for the services provided to enrollees in its health plans. As a self-funded payor, UEBT contracted with a “network vendor,” California Physicians' Service (doing business as Blue Shield of California; hereafter Blue Shield),¹to obtain access to Blue Shield's provider network at the rates Blue Shield had separately negotiated, as well as certain administrative services. One of Blue Shield's preexisting provider contracts was with Sutter Health (Sutter)—a group of health care providers in Northern California.

In this action, UEBT sues Sutter, on behalf of a putative class of all California self-funded payors, alleging that Sutter's various written and oral contracts with network vendors—such as Blue Shield—contain anticompetitive terms that insulate Sutter from competition and drive up the cost of healthcare. UEBT seeks, inter alia, damages, restitution, and injunctive relief under the Cartwright Act (Bus. & Prof.Code, § 16720 et seq.) and California's

194 Cal.Rptr.3d 194

unfair competition law (UCL) (id.,§ 17200). Sutter moved to compel arbitration of UEBT's complaint, relying on an arbitration clause in the provider contract signed by Sutter and Blue Shield. The trial court denied Sutter's motion, concluding that UEBT was not bound to arbitrate its claims pursuant to an agreement it had not signed or even seen. Sutter appeals and we affirm.

I. Factual and Procedural Background

This case centers on two contracts—one between Sutter and Blue Shield (the Provider Contract) and an “administrative services only” agreement between Blue Shield and UEBT (the ASO Contract).

241 Cal.App.4th 915

The Terms of the Contracts

In 2007, Sutter and Blue Shield signed a “Systemwide Amendment” that, among other things, (1) provides reduced service rates to Blue Shield and third parties that contract with Blue Shield to pay those rates and (2) contains an arbitration clause.²

With respect to third-party payors, the Provider Contract provides that Blue Shield's “provider network, which includes all the [Sutter] Providers, may be sold, leased, transferred or conveyed,” and that Blue Shield “shall comply with all requirements of ... Section 1395.6.”³Accordingly, the Provider Contract provides that only third-party payors “that both (i) Actively Encourage their Members to use [Blue Shield]'s provider network and (ii) use [Blue Shield]'s provider network as their exclusive network in areas where [Blue Shield] is the contracted network for the specific Benefit Program shall be permitted to access the discounted rates set forth in this Agreement.” The Provider Contract also requires Blue Shield to disclose to Sutter the third-party payors “currently eligible to access the Providers....”

In 2007, the Provider Contract required “[Blue Shield] [to] assure that Other Payers have agreed to be bound by ... the Dispute Resolution and Binding Arbitration Process outlined in Exhibit 13.” The Provider Contract also contained a confidentiality provision that defined the agreement itself as “Confidential Information,” to be maintained “in strictest confidence.” Sutter prohibited Blue Shield from disclosing the terms of the Provider Contract without prior written authorization.

In 2009, Blue Shield and UEBT entered into the ASO Contract. Thereunder, UEBT pays Blue Shield a fee for administrative services, including processing the healthcare providers' claims for payment, as well as for access to Blue Shield's provider network at the rates negotiated by

194 Cal.Rptr.3d 195

Blue

241 Cal.App.4th 916

Shield. UEBT reimburses Blue Shield for all covered health care charges paid on behalf of UEBT members. In the ASO Contract, UEBT and Blue Shield expressly disclaimed an agency relationship and expressly agreed to litigate unresolved disputes in California courts.

As a result of the ASO Contract, UEBT became an “ASO Payer” under the Provider Contract. UEBT and Blue Shield acknowledged, “in making its network of Contracted Providers available to [UEBT], Blue Shield is subject to California Business and Professions Code [section] 511.1 et seq.” (Italics added & omitted.) Accordingly, UEBT agreed “to actively encourage the use of the Contracted Providers”—an obligation it has fulfilled. However, section 9.3 of the ASO Contract provides: “Benefit payments made by [UEBT] to Contracted Providers shall be in accordance with the payment provisions in the contracts between Blue Shield and Contracted providers to the extent such payment terms are communicated to Client. Nothing in this Agreement is intended to create any third party beneficiary rights in any persons or entities, including, but not limited to, Contracting Providers. This Agreement does not create any contractual relationship between [UEBT] and Contracted Providers, nor shall anything in this Agreement be construed as a sale, lease or transfer to [UEBT] of any agreement or contract between Blue Shield and any Contracting Provider.” (Italics added.)

Pursuant to the ASO Contract, Blue Shield notified Sutter that UEBT enrollees would be accessing the Blue Shield network of providers. UEBT's beneficiaries began presenting Blue Shield cards to Sutter to obtain medical services at the agreed rates. The existence of the Provider Contract's arbitration clause was not disclosed to UEBT.

In 2012, Sutter and Blue Shield amended the Provider Contract, amending the “Dispute Resolution” provision so that it expressly applied to “[a]ll disputes” between “Sutter and any ... ASO Payer.” Blue Shield was also now contractually required to ensure “that all ... ASO Payers ... have agreed to be bound by the terms of this Agreement, including without limitation the Dispute Resolution and Binding Arbitration Process set forth in Exhibit 13.” However, Sutter and Blue Shield did not amend Exhibit 13, which continued to provide: “Overall Scope.The provisions for mediation and binding arbitration set forth in this Exhibit shall apply to all disputes between the Parties arising from or in any way related to the Provider Contracts and/or this Amendment. ... [¶] ... [¶] ... Agreement to Arbitrate.If they cannot resolve their disputes through the meet and confer process or mediation (if applicable), the Partiesshall submit the dispute(s) to binding arbitration in lieu of any form of litigation in any court.” The “Parties” are defined in the preamble as Sutter and Blue Shield.

241 Cal.App.4th 917

In 2012, Sutter and Blue Shield also amended the confidentiality provisions of the Provider Contract. Rather than requiring Sutter's prior written authorization for each disclosure, as had previously been required, Sutter and Blue Shield agreed that Blue Shield may disclose the Provider Contract to “a Payer ... as necessary for Payer ... to comply with its obligations under this Agreement,” so long as the payor agreed to maintain the contract's confidentiality. However, when UEBT requested copies of Blue Shield's contracts with Sutter in 2013, the request was declined by Blue Shield on the ground the contracts were “proprietary.”

UEBT's Lawsuit Against Sutter

In April 2014, UEBT sued Sutter, on behalf of itself and a class of all other

194 Cal.Rptr.3d 196

California self-funded payors who have paid Sutter, claiming that the terms of the “written or oral contracts” Sutter enters with network vendors violate the Cartwright Act and the UCL, causing the class members to overpay for Sutter's services. Specifically, UEBT alleges on information and belief,⁴that Sutter demands inclusion of anticompetitive terms, including prohibiting disclosure of hospital pricing information, prohibiting efforts to encourage...