Baglione v. Health Net of Cal. ( 2023 )


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  • Filed 11/27/23; Certified for Publication 12/6/23 (order attached)
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION EIGHT
    SALVATORE J. BAGLIONE,                              B319659
    Plaintiff and Respondent,                   (Los Angeles County
    Super. Ct. No. 21STCV31846)
    v.
    HEALTH NET OF
    CALIFORNIA, INC.,
    Defendant and Appellant.
    APPEAL from an order of the Superior Court of Los
    Angeles County, Maurice A. Leiter, Judge. Affirmed.
    Husch Blackwell and Jules S. Zeman for Defendant and
    Appellant.
    Gianelli & Morris, Robert S. Gianelli, Joshua S. Davis and
    Adrian J. Barrio for Plaintiff and Respondent.
    _________________________
    Health Net of California, Inc. (Health Net) appeals the trial
    court’s order denying its motion to compel arbitration of the
    breach of contract and bad faith causes of action brought against
    it by its insured, plaintiff Salvatore Baglione. The trial court
    found that the agreement between Health Net and plaintiff’s
    employer, the County of Santa Clara (County), did not satisfy the
    disclosure requirements of Health and Safety Code1 section
    1363.1, rendering the arbitration provision of plaintiff’s
    enrollment form unenforceable. Health Net contends it satisfied
    those disclosure requirements on the enrollment form signed by
    plaintiff.
    We hold that the enrollment form does not comply with the
    requirements of section 1363.1. We also agree with the trial
    court that the County’s agreement with Health Net is not
    compliant either, and an arbitration agreement, which is part of
    a health plan, is not enforceable unless both the enrollment form
    and the County agreement are compliant. Accordingly, we affirm
    the trial court’s order.
    BACKGROUND
    Plaintiff obtained his medical insurance through his
    employer, the County of Santa Clara. The County contracts with
    Health Net, among other health care plans, to provide medical
    insurance to its employees.2
    1    Further undesignated statutory references are to the
    Health and Safety Code.
    2     These agreements are yearly, and so four agreements cover
    the period at issue in this lawsuit. All contain identical
    arbitration provisions.
    2
    Plaintiff signed an enrollment form for Health Net in
    March 2019 as a new hire. In June 2019, he signed an
    enrollment form to add his child to his medical insurance. Both
    forms contained the same arbitration provision.
    In or about June 2019, plaintiff was diagnosed with a
    painful and chronic condition. His physician determined that a
    monthly injectable medication was the appropriate treatment for
    plaintiff’s condition. The medication to treat plaintiff was
    approved by the Food and Drug Administration. The drug met
    criteria to be covered by the pharmacy benefits of plaintiff’s plan
    with Health Net, but Health Net required a prior authorization
    for the drug.
    Health Net initially contended that injectable medications
    were the responsibility of plaintiff’s medical group. Health Net
    authorized the drug in September 2019, denied the next request
    for authorization, occasionally thereafter authorized it, but
    primarily denied it.
    In August 2020, plaintiff submitted a complaint to the
    California Department of Managed Health Care (DMHC). In
    October 2020, Health Net sent a letter to plaintiff stating the
    drug had been denied due to a technical error and Health Net
    was financially responsible for the medication. Health Net
    authorized the medication through June 2021. When plaintiff’s
    physician tried to renew the authorization in 2021, Health Net
    again took the position that the medical group was financially
    responsible for the medication.
    Plaintiff filed this lawsuit against Health Net in August
    2021, alleging causes of action for breach of contract and breach
    of the implied covenant of good faith and fair dealing.
    3
    Health Net promptly moved to compel arbitration of
    plaintiff’s breach of contract and bad faith causes of action.
    Health Net asserted that plaintiff had agreed to arbitrate all
    disputes with Health Net when he completed the Health Net
    enrollment form.
    Plaintiff opposed the motion, contending that Health Net
    failed to comply with the mandatory arbitration disclosure
    requirements of section 1363.1, subdivision (d), with respect to
    signature lines in both the group agreement between Health Net
    and the County and the individual enrollment form signed by
    plaintiff.
    There is no dispute that the County agreement does not
    contain the required signature line immediately after the
    arbitration provision, as required by section 1363.1, subdivision
    (d). There is no dispute that plaintiff signed the enrollment
    form’s signature line meant to apply to the arbitration clause.
    Health Net did not concede that any aspect of the arbitration
    disclosure in the enrollment form was out of compliance with
    section 1363.1.
    The trial court agreed the group contract between the
    County and Health Net failed to comply with the requirements of
    section 1363.1, subdivision (d). The trial court did not rule on the
    enrollment form’s compliance. This appeal followed.
    DISCUSSION
    A.    Enrollment Form
    “Section 1363.1 establishes mandatory disclosure
    requirements for health services plans that require binding
    arbitration. [Citations.] We review de novo the trial court’s
    denial of the petition to compel arbitration based on the failure to
    comply with the requirements of section 1363.1.” (Rodriguez v.
    4
    Blue Cross of California (2008) 
    162 Cal.App.4th 330
    , 335
    (Rodriguez).) We are not bound by the trial court’s rationale and
    may affirm its ruling on any correct legal theory supported by the
    record. (Johnson v. The Raytheon Co., Inc. (2019) 
    33 Cal.App.5th 617
    , 627, fn. 9; Cheng-Canindin v. Renaissance Hotel Associates
    (1996) 
    50 Cal.App.4th 676
    , 683, fn. 3.)
    The primary aim of section 1363.1 is “to protect health care
    consumers from the consequences of unknowingly waiving their
    right to a jury trial.” (Malek v. Blue Cross of California (2004)
    
    121 Cal.App.4th 44
    , 71 (Malek).) To accomplish this goal, section
    1363.1 provides: “Any health care service plan that includes
    terms that require binding arbitration to settle disputes and that
    restrict, or provide for a waiver of, the right to a jury trial shall
    include, in clear and understandable language, a disclosure that
    meets all of [four listed] conditions[.]” (§ 1363.1.)
    We find the enrollment forms do not comply with section
    1363.1, subdivisions (a) and (c), both of which require clarity of
    disclosure. Subdivision (a) provides: “The disclosure shall clearly
    state whether the plan uses binding arbitration to settle disputes,
    including specifically whether the plan uses binding arbitration
    to settle claims of medical malpractice.” (§ 1363.1, subd. (a).)
    Subdivision (c) provides: “The disclosure shall clearly state
    whether the subscriber or enrollee is waiving his or her right to a
    jury trial for medical malpractice, other disputes relating to the
    delivery of service under the plan, or both[.]” (Id., subd. (c).)
    The disclosure provision in this case begins by stating at
    some length that the enrollee agrees to arbitrate “any and all
    disputes,” including medical malpractice. Then, however, the
    disclosure qualifies this broad language by mentioning that “a
    more detailed arbitration provision is included in the Evidence of
    5
    Coverage or Certificate of Insurance. Mandatory arbitration may
    not apply to certain disputes if the Employer’s plan is subject to
    ERISA,[3] 
    29 U.S.C. §§ 1001
    –1461.”
    By this point, the enrollee can only know which disputes he
    will have to submit to arbitration by determining whether his
    plan is covered by ERISA and then by determining what disputes
    “may” be exempted by ERISA. The enrollee certainly cannot
    make this determination from the information in the enrollment
    form.4 This is not the clear disclosure of which disputes are
    subject to arbitration that is required by section 1363.1.
    Health Net is not at the same disadvantage as its enrollees.
    Health Net explains quite clearly in its opening brief on appeal
    that the plan is not subject to ERISA because Santa Clara, “as a
    political subdivision of the State of California established and
    maintains health benefit plans . . . for its employees through
    third-party insurance companies, like Health Net. [Health Net’s
    3     Employee Retirement Income Security Act of 1974.
    4      If the enrollee turns to the Evidence of Coverage, and looks
    up arbitration, he will find only a statement that “Members who
    are enrolled in a plan that is subject to ERISA, 29 U.S.C § 1001
    et seq., a federal law regulating benefit plans, are not required to
    submit disputes about certain ‘adverse benefit determinations’
    made by Health Net to mandatory binding arbitration. Under
    ERISA, an ‘adverse benefit determination’ means a decision by
    Health Net to deny, reduce, terminate or not pay for all or a part
    of a benefit.” The enrollee still will not know if their plan is
    subject to ERISA. We do not know what an enrollee might find
    about ERISA in the other 162 pages of the Evidence of Coverage
    booklet, because it is not the enrollee’s responsibility to scour the
    booklet for more information on this issue, and so we have not
    done so either.
    6
    plan] is a ‘governmental plan’ and exempt from ERISA.
    (
    29 U.S.C. § 1002
    (32).” Health Net does not explain why this
    inapplicable ERISA provision is mentioned in the arbitration
    disclosure and agreement provision of the enrollment form for
    County employees.
    By placing these references to additional documents and
    inapplicable laws between the bulk of the disclosure and the
    signature line, Health Net also failed to comply with
    subdivision (d) which provides in pertinent part: “In any . . .
    enrollment agreement for a health care service plan, the
    disclosure required by this section shall be displayed . . .
    immediately before the signature line provided for the individual
    enrolling in the health care service plan.” (§1363.1, subd. (d).)
    Even “ ‘[t]echnical violations’ of the statute—such as the
    failure to prominently display an arbitration provision
    immediately above the signature line on the enrollment form—
    'render [the] arbitration provision unenforceable’ regardless of
    whether the person enrolling in the health plan received some
    notice of the arbitration clause by reviewing the noncomplying
    provision.” (Medeiros v. Superior Court (2007) 
    146 Cal.App.4th 1008
    , 1015, quoting Malek, supra, 121 Cal.App.4th at pp. 50, 72.)
    As the First District Court of Appeal has explained: “In
    plain and ordinary language, ‘immediately before’ means that the
    arbitration agreement must be typed in directly before the
    signature line provided for the individual on the enrollment form
    without any intervening language.” (Robertson v. Health Net of
    California, Inc. (2005) 
    132 Cal.App.4th 1419
    , 1426 (Robertson);
    see Malek, supra, 121 Cal.App.4th at pp. 62–63; see Rodriguez,
    supra, 162 Cal.App.4th at p. 338.)
    7
    Health Net contends that the intervening language in
    Robertson, Malek and Rodriguez all involved some subject other
    than arbitration, but the allegedly intervening language in this
    case “pertains to binding arbitration and the enrollees’ waiver of
    jury trial. The sentences about which [p]laintiff complains relate
    directly to the disclosure requirements in section 1363.1 and the
    Parties’ arbitration agreement.”
    In fact, they do not. Section 1363.1’s disclosure
    requirements are not satisfied by references to Evidence of
    Coverage documents or Certificates of Insurance. Mentioning
    them is as much a digression as the HIV testing language in
    Robertson, the release of medical information language in Malek
    or the reference to class claims in Rodriguez. (Robertson, supra,
    132 Cal.App.4th at p. 1423 ; Malek, supra, 121 Cal.App.4th at
    p. 62, Rodriguez, supra, 162 Cal.App.4th at p. 333.)
    Section 1363.1 does not require any disclosure related to
    ERISA. The parties’ arbitration agreement is not subject to
    ERISA and so mentioning ERISA does not relate to that
    agreement at all. Again, this language is a much a digression
    from the disclosure requirements as the language in Robertson,
    Malek and Rodriguez.
    We recognize that the disclosure agreement contains one
    more sentence after the ERISA reference: “My signature below
    indicates that I understand and agree with the terms of this
    Binding Arbitration Agreement and agree to submit any disputes
    to binding arbitration instead of a court of law.” This sentence is
    immediately followed by the signature line. Health Net does not
    contend that this sentence alone satisfies the disclosure
    requirement of section 1363.1. We agree with plaintiff that any
    sentence placed after intervening language would have to satisfy
    8
    all the specific requirements of section 1363.1, and this sentence
    does not. (Robertson, supra, 132 Cal.App.4th at p. 1428.)
    Compliance with the provisions of section 1363.1 is
    mandatory. Health Net has not complied with respect to
    plaintiff’s enrollment form, and the result is that the arbitration
    agreement is not enforceable.
    B.    County Agreement
    Assuming for the sake of argument that the enrollment
    form is compliant with section 1363.1, we also agree with the
    trial court’s ruling that the County’s agreement with Health Net
    did not comply with section 1363.1, subdivision (d).
    Subdivision (d) provides in full: “In any contract or
    enrollment agreement for a health care service plan, the
    disclosure required by this section shall be displayed immediately
    before the signature line provided for the representative of the
    group contracting with a health care service plan and
    immediately before the signature line provided for the individual
    enrolling in the health care service plan.” (§ 1363.1, subd. (d),
    italics added.)
    To state what should be obvious, subdivision (d) requires
    signature lines in both the enrollment form and the County’s
    agreement with Health Net. In the trial court, Health Net
    focused on its claim that plaintiff lacked standing to raise the
    noncompliance in the County agreement.
    The trial court stated that it found Health Net’s argument
    “unpersuasive. The statute provides mandatory requirements for
    both group contracts and individual enrollment forms. Courts
    have held that agreements not in compliance with these
    requirements are unenforceable, even where the individual had
    actual notice. The group contract is a prerequisite to Plaintiff’s
    9
    enrollment form; the group contract was entered into for the clear
    benefit of group members like Plaintiff. As the group contract
    does not comply with section 1363.1, arbitration cannot be
    enforced against Plaintiff.”
    On appeal, Health Net’s arguments of error are premised
    on its contention that the signature line provision for the
    enrollment form is intended only to ensure the enrollee has notice
    of the arbitration provisions applicable to the enrollee’s disputes
    with the health plan, while the signature line provision for the
    representative of the group contracting with the health plan is
    intended only to ensure that the employer has notice of the
    arbitration provisions applicable to the employer’s own disputes
    with the health plan.
    Health Net almost immediately undercuts its own
    arguments with references to the legislative history and purpose
    of section 1363.1. Health Net argues that the “legislative history
    focuses on [the] notice needs of enrollees—it contains no
    statement that the purpose of the legislation being to protect the
    interests of group employers.”
    “The purpose of this bill is to promote . . . consumer
    awareness of rights under health or disability insurance plans
    that require binding arbitration to resolve medical malpractice
    disputes.”5 But we do not see how that purpose assists Health
    Net. The legislation as passed does require a signature line for a
    representative of the employer in the employer’s agreement with
    the health plan. If the purpose of section 1363.1 is not to protect
    5      We take no position on the weight which should be given to
    this statement, which Health Net identified as an excerpt from
    the Senate floor analysis of Assembly Bill No. 3260 by the
    California Senate Rules Committee as amended August 24, 1994.
    10
    employers, then logically this signature line requirement for the
    employer-health plan agreement must be intended to protect
    enrollees.
    Next, Health Net turns to plaintiff’s standing. Here,
    Health Net adopts, without discussion, a contrary position: the
    purpose of the signature line requirement in the County
    agreement is to provide the County with notice that the County’s
    own disputes with Health Net are subject to arbitration, and not
    to benefit plaintiff and so plaintiff lacks standing to enforce it.
    Not only is this argument inconsistent with Health Net’s
    prior argument that the purpose of the signature line is to protect
    the employees, it ignores the fact that an employer’s agreement
    with a health plan is negotiated primarily for the benefit of the
    employees. “[A]n employer that negotiates group medical
    benefits for its employees acts as an agent for those employees
    during the period of negotiation. [Citation.] An agency
    relationship is a fiduciary one, obliging the agent to act in the
    interest of the principal.” (Engalla v. Permanente Medical Group,
    Inc. (1997) 
    15 Cal.4th 951
    , 977.) Thus, a properly negotiated
    employee agreement is negotiated for the benefit of its
    employees.6
    6     Health Net’s argument also ignores the language of the
    agreement, in which arbitration by the Group (County) and
    arbitration by enrollees are mentioned together, not discussed
    individually. The arbitration provision of the agreement begins
    by noting that “Sometimes disputes or disagreements may arise
    between Health Net and the Group or Members[.]” It continues
    “As a condition to contracting with Health Net, Group and
    Members agree to submit all disputes they may have with Health
    Net to final and binding arbitration.”
    11
    Health Net’s interpretation of section 1363.1 is not
    consistent with this requirement. Its interpretation would
    require a health plan to disclose to an employer that the
    employer is agreeing to arbitrate the employer’s dispute with the
    health plans, but the health plan need not disclose to the
    employer, which is signing the agreement on behalf of its
    employees, that the employees will also be required to arbitrate
    their disputes with the health plan.
    We see no basis for understanding section 1363.1 in this
    manner. If notice and disclosure are necessary to protect an
    employer who is giving up its right to a court or jury trial and
    agreeing to arbitration in an agreement, notice and disclosure to
    the employer are equally necessary to protect the employees on
    whose behalf the employer is negotiating the agreement.
    Viewed differently, it is the agreement between the County
    and Health Net which sets the terms of the relationship between
    Health Net and County employees, including the employees’
    waiver of trial rights and acceptance of mandatory arbitration.
    Section 1363.1 requires specific disclosures of the trial rights
    waiver and arbitration provision for the agreement to be valid.
    Because section 1363.1 compliant notice is required for a knowing
    waiver of jury rights, if the notice provision in the agreement only
    tells the employer what rights it, as employer, is giving up, the
    employer has not knowingly waived the rights its employees are
    giving up.
    It is well established that when a contract is made for the
    benefit of a person who is not a party to the contract, that person
    does have standing to enforce the contract. (See Civ. Code,
    12
    § 1559.)7 Health Net does not address this principle but instead
    attempts to side-step third party enforcement by arguing that “a
    stranger to an agreement has no standing to challenge its
    validity on the ground that it was not signed by the other parties
    in accordance with statutory requirements. (Safarian [v.
    Govgassian (2020)] 47 Cal.App.5th [1053,] 1066 [‘Only the
    contracting parties have the power to ratify or avoid a voidable
    agreement . . .’].)”
    Health Net next argues that the non-compliant arbitration
    provisions are voidable, not void. As we will explain, a
    noncompliant arbitration agreement is void, not voidable.
    We agree with plaintiff that only voidable contracts can be
    ratified. (Yvanova v. New Century Mortgage Corp. (2016)
    
    62 Cal.4th 919
    , 929–930.) We do not agree with Health Net that
    either the enrollment form or the County agreement are merely
    voidable.
    Agreements to arbitrate that do not comply with section
    1363.1 are void, not voidable. “The disclosure requirements are
    necessary to form a contractual arbitration agreement. The
    disclosures communicate the contractual consequences of the jury
    waiver to ensure a knowing waiver of the right to a jury trial.
    Assent these disclosure requirements, there is no contractual
    agreement to arbitrate.” (Malek, supra, 121 Cal.App.4th at
    p. 66.)
    7      Health Net just states the general rules that only the real
    party in interest has standing to sue and obtain relief in court
    (Code Civ. Proc., § 367), and that a party does not have standing
    to assert rights or interests belonging “solely” to others. (See,
    e.g., Jasmine Networks, Inc. v. Superior Court (2009)
    
    180 Cal.App.4th 980
    , 992.)
    13
    Health Net next invokes estoppel, relying on the broad
    proposition that accepting the benefits of an agreement operates
    as an estoppel if the person acted with full knowledge of all
    material facts and circumstances, and with full knowledge of his
    rights. Assuming for the sake of argument that estoppel applies
    at all, Health Net does not explain how plaintiff had full
    knowledge that the County agreement did not comply with
    section 1363.1. We are not bound to make an appellant’s
    argument for it. (United Grand Corp. v. Malibu Hillbillies, LLC
    (2019) 
    36 Cal.App.5th 142
    , 153.)
    C.    The Federal Arbitration Act (FAA)
    The McCarran-Ferguson Act deprives Congress of the
    power to invalidate state law “regulating the business of
    insurance.” (
    15 U.S.C. § 1012
    (b).) Section 1363.1 “does regulate
    the business of insurance within the meaning of McCarran-
    Ferguson. Therefore, the FAA, a federal statute of general
    application, which does not ‘specifically relate’ to insurance, is
    foreclosed from application to prevent the operation of section
    1363.1. As a result, [the health care service plan’s] arbitration
    provisions may not be enforced because of their failure to satisfy
    the specific and unambiguous disclosure requirements imposed
    by section 1363.1.” (Smith v. PacifiCare Behavioral Health of
    Cal., Inc. (2001) 
    93 Cal.App.4th 139
    , 162.)
    Health Net contends that the FAA is not reverse-
    preempted by the McCarren-Ferguson Act “where, as here, the
    FAA does not prevent state law from regulating the business of
    insurance, but rather merely requires that section 1363.1 be
    correctly applied under California law.” As we have just
    explained, section 1363.1 has been correctly applied in this case.
    14
    Health Net also states more specifically that “the FAA
    governs where a [s]uperior [c]ourt’s interpretation and
    application of a statute voids an arbitration agreement between
    an enrollee and his health plan that fulfills all notice
    requirements under state law.” The underlying premise of this
    argument is that the enrollment form “fulfills all notice
    requirements” of section 1363.1. As we have explained, it does
    not.
    Thus, the FAA does not require that we reverse the trial
    court’s order and compel arbitration.
    DISPOSITION
    The trial court’s order is affirmed. Health Net to pay costs
    on appeal.
    STRATTON, P. J.
    We concur:
    GRIMES, J.
    VIRAMONTES, J.
    15
    Filed 12/6/23
    CERTIFIED FOR PUBLICATION
    IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
    SECOND APPELLATE DISTRICT
    DIVISION EIGHT
    SALVATORE J. BAGLIONE,                    B319659
    Plaintiff and Respondent,          (Los Angeles County
    Super. Ct. No. 21STCV31846)
    v.
    ORDER CERTIFYING
    HEALTH NET OF CALIFORNIA,                 OPINION FOR PUBLICATION
    INC.,
    [NO CHANGE IN JUDGMENT]
    Defendant and Appellant.
    THE COURT:
    The opinion in the above-entitled matter filed on November 27, 2023,
    was not certified for publication in the Official Reports. For good cause, it
    now appears that the opinion should be published in the Official Reports and
    is so ordered.
    There is no change in the judgment.
    ________________________________________________________________________
    STRATTON, P. J.             GRIMES, J.                 VIRAMONTES, J.
    

Document Info

Docket Number: B319659

Filed Date: 12/6/2023

Precedential Status: Precedential

Modified Date: 12/6/2023