Electronically FILED Hy Superior Court of California, County of Los Angeles on 03/27/2020 05:03 PM Sherri R. Carter, Executive Officer/Clerk of Court, by J . Lara,Deputy Clerk 1 || MORGAN, LEWIS & BOCKIUS LLP BRIAN M. JAZAERI (SBN 221144) TAYLOR C. DAY (SBN 267435) 300 South Grand Avenue, 22nd Floor Los Angeles, California 90071-3132 T: 213.612.2500 F: 213.612.2501 MORGAN, LEWIS & BOCKIUS LLP MOLLY MORIARTY LANE (SBN 149206) One Market, Spear Street Tower San Francisco, California 94105-1126 T: 415.442.1000 F: 415.442.1001 ~N O Y a B A W Attorneys for Defendant 9 || HEALTH NET OF CALIFORNIA, INC. 10 SUPERIOR COURT OF THE STATE OF CALIFORNIA 11 FOR THE COUNTY OF LOS ANGELES 12 13 || UNIVERSITY OF SOUTHERN Case No. 19STCV39900 CALIFORNIA on behalf of its KECK 14 || HOSPITAL OF USC and on behalf of its MEMORANDUM OF POINTS AND USC KENNETH JR. CANCER AUTHORITIES IN SUPPORT OF 15 || HOSPITAL, a California corporation, HEALTH NET OF CALIFORNIA, INC.’S Plaintiff MOTION TO COMPEL ARBITRATION 16 ’ AND TO STAY JUDICIAL Vv. PROCEEDINGS 17 Judge: ~~ Hon. Malcolm Mackey Dept.: 55 18 ; HEALTH NET OF CALIFORNIA, INC.; a Date: August 24, 2020 California corporation, and DOES 1 19 through 25, inclusive Time.; 8:30 am. & ’ Reservation ID: CR-NWEVZUYUZDCVGBPI 20 Dieiendat [Filed concurrently with Petition to Compel 21 Arbitration; Notice of Motion and Motion to Compel Arbitration; Declaration of Brian M. 22 Jazaeri; Declaration of John Hall; Declaration of Laura Ankney; and [Proposed] Order] 23 24 23 26 27 28 MORGAN, LEWIS & Bockius LLP 1 ATTORNEYS AT LAW MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW TABLE OF CONTENTS Page LL. I TRC VEN TCT TUOIIN etme HSE SE ERE 1 IIL. STATEMENT OF FACTS o.oo seve eres see 1 A. USC Voluntarily Executed the Provider Participation Agreement............cc........... 1 B. The Agreement Contains a Broadly-Worded, Mandatory Arbitration PIOVISION. weet citeseect eee see eect ese sees eeeeeeesnneeene 2 C. In Violation of the Agreement, USC Filed Suit Against Health Net...................... 3 D. USC Refused to ATHIFALE. «owmmmsmammmmnos sammsmmmsamenss asammmoms ae 3 III. THE COURT SHOULD COMPEL ALL CLAIMS TO ARBITRATION........ccccevveenuneen 3 A. The Agreement Is Enforceable Under the FAA and California Law...................... 3 I. The FAA Requires Arbitration of This Dispute.........c.cccecceevvirnieniceneennen. 3 2. California Law Similarly Requires Arbitration of This Dispute................. 5 B. Arbitrability Is a Decision for the Arbitrator Here Because the Arbitration Provision Expressly Delegates the Gateway ISSUES. .......ccccevviiiiiieiinieinnieenniieenee 3 C. The Arbitration Provision Is Valid and USC’s Claims Are Within Its SCOPE. eee eee eee eee ee ete eee ete eee sate sates sates sates sabes sabe eshte eenabe ee bae es 8 I. USC’s Claims Are Covered by the Arbitration Provision. .........cc.cceueeeeee. 9 2. A Valid Agreement to Arbitrate EXISTS. ....cccccoveevierieinieiniinnieciececnenne 11 D. Litigation Should Be Stayed Pending Completion of Arbitration. ............cc......... 11 IV. CONCLUSION .....ootitititete eects eect estes sae sete sees sa ee sabe ee esses sree sane eseenneens 12 2 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW TABLE OF AUTHORITIES Page(s) Federal Cases Allied-Bruce Terminix Companies, Inc. v. Dobson, STB US. 265 (1995) ce iche sates estes sb ee sabe sateen teeta etbe sabe anne eben 4 AT & T Techs., Inc. v. Commc’ns Workers of Am., ATS TLS. 043 (1980)... eee t este shee setae sees see sabe esbe anne eenseessae esse anneas 9 Belnap v. lasis Healthcare, 844 F.3d 1272 (10th Cir. 2017) ccuueieieie eit cites sites sate seas eee ste esbae esse anne eseens 7 Brennan v. Opus Bank, 796 F.3d 1125 (9th Cir. 2015) eee ters setae este sate sabes e esas seve enneas 7 Caviani v. Mentor Graphics Corp., No. 19-CV-01645-EMC, 2019 WL 4470820 (N.D. Cal. Sept. 18, 2019) ....ccccevrvirrieerierenee. 7 Circuit City Stores, Inc. v. Adams, 532 US. 105 (2001) ceneieeeieeiteetieetieeeeeeeeteeeteeeteeteetees tee eabe sabe s es sb ee sabe enbe ane ee nseesbae sabe anneesseens 4 Citizens Bank v. Alafabco, Inc., 539 US. 52 (2003) cee eee ete et tee ate eee t east ee ete eabe este e bee sabe enbe ent estes ehbe sabe eneeesaen 5 Cooper v. WestEnd Capital Mgmt., L.L.C., 882 F.8d Sek (Sih NF ZOE cvs ovanmnsmensornnasmsommess oss os m asses ss me 7 Daugherty v. Experian Info. Sols., Inc., 847 F. Supp. 2d 1189 (N.D. Cal. 2012) .eueeiiieiie ects eee ees eben 9 Dean Witter Reynolds, Inc. v. Byrd, AT0 TLS. 213 (1985) cuiiieiieeiie eee teeta ete eebeeee ete esbbe sabe e sees see sabe esbe anata enseessae esse anneas 3 Fed. Trade Comm’n v. Sanford Health, Sanford Bismarck, No. 1:17-CV-133, 2017 WL 10810016 (D.N.D. Dec. 15, 2017) wcccceevciiiiieiieeieeeeeieeeeie eee 1 Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S.Ct. 524 (2019) eee eee eee eee sees sabe eae eet ee ebbeenbe ene eeree ns 6, 8 Howsam v. Dean Witter Reynolds, Inc., SFT V8 V0 COIL 005 ssn ssn vss it sod’ 535508 20555 8 7 08 A AS 5 ASH 5 5 55 6 King v. Burwell, 135 S.Ct. 2480 (2015) cuiiiiiieeiie eee seats sh tees atest sbte see e ne eet ee enae anne 10 Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414 (9th Cir. 1984)... sees sabe sees a ee sbae sete annees 8 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW MoistTech Corp. v. Sensortech Sys., Inc., No. CV 15-4952 PA, 2015 WL 12778416 (C.D. Cal. Sept. 14, 2015) ....ccccceerieeieriiereeenneennn Momot v. Mastro, 652 F.3d 982 (9th Cir. 2011) cio eccieeeee eee eeectereee ee ee eter area sees ener te area sees ee eanranaees Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., AO0 U.S. T (1983) cenit eee eects ee sae see sees sree ease eee n nee sae eene Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069 (9th Cir. 2013) ..ccciiiieiiiieeitie ters essere esses esas Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 F.3d 981 (Oth Cir. 2017) .ccuueeiieeiieieeteie eects eerste eee sate sees estaba enae Prima Paint Corp. v. Flood & Conklin Mfg. Co., B88 LL TOT NTO TY sins vss ssns sin it sods 53550 205555. 75 08 A E350 5 FASS ES. Shearson/Am. Express, Inc. v. McMahon, 482 US. 220 (1987) weet eee eee eee eee ete ete ete etter e sabes sabe e esate esa eesbbe esate eens Simula, Inc. v. Autoliv, Inc., 175 F.3d 716 (9th Cir. 1999)... cee eee eee sees eee eee eee ee etae ee eaae een Southland Corp. v. Keating, AES Tiss 1 TLDBAY cr cunumnssnesmmnmsasonusessoesmin sss asss sss 550mm suas 65 08 SA A SAR SS RRA SHAG Summit Health, Ltd. v. Pinhas, 500 U.S. 322 (1991) curries eee eee e eee eee ee eee ae ee ee tae ea e etaeae ee earae ee eenaeae ns California State Cases Aanderud v. Super. Ct., 13 Cal. APP. 5th 880 (2017) eee eters eee ete sree eters sate esse e sees t ee ebae eens Buckhorn v. St. Jude Heritage Med. Grp., 121 Cal. App. 4th T40T (2004)... .uieieieiieeiie eee eters ee eee e estes sabe este e sees sae saae eens Cione v. Foresters Equity Servs., Inc., 8 Call; APD. Ath BLE (1 DOT) is cvssesmmssnsumasossmsomnesinsnnnsasissssisasesnsss ns ism xs s6 s a me s Sms SER HE Cruz v PacifiCare Health Sys., Inc., 30 Cal. 4th 303 (2003) .uveeieeeeie cite eee eerste atest este etter e sbeebs sabe a ate ete e baa sete e nee ebaeeaee eens Dream Theater, Inc. v. Dream Theater, 124 Cal. APP. 4th 547 (2004)... eee eects eesti esses sabes sabe e esate es aae es Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th O51 (1997) its sate sate st estes sate sae nas MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW Erickson v. Aetna Health Plans of Cal., Inc., TL Cals, App. Ah 646 (1 99D). cussmsnsnsunnsasisnsumassnsssns assess ns ss snes sims mse 565s 6 5 bae ss 5555553 4 Greenspan v. LADT, LLC, 185 Cal. App. 4th 1413 (2010)..uccueiiiieiie eects eects este ee eee sate este e east ee ebae sabe enneas 7 Harris v. Super. Ct., 188 Cal. APP. 3A 475 (1986) .....ei cei ters sates beer esses eaae eens 10 Kennedy, Cabot & Co. v. Nat’l Ass’n of Sec. Dealers, Inc., 41 Cal APP. 4th T1167 (1996)......iciiiiiieeiie ters sate eee atest sate sabe eee sees sabe sabe anaes 9 Mission Viejo Emergency Med. Assoc., 197 Cal. App. 4th 1146, 1154 (2011) ooeeeeiieee ee e e eee estes saa 11 Moncharsh v. Heily & Blase, CAL MB. 1 U1 TOZ) x05 msn sss sivas sits sso 535505 255555550505 7 508 A A550 5 AS55555 55 5 Mount Diablo Med. Ctr. v. Health Net of Cal., Inc., 101 Cal. App. 4th 711 (2002)....eeeueiiiieiie eects eee e ete e sate sabe ates tee saae sabe aneas 4 Pinnacle Museum Tower Assn. v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223 (2012) weeeeeeeeiie eee eee eerste ese eee ae ae etbe ae erbe ee sare ae erae ee eaaeeeaaes 11 Ruiz v. Sysco Food Servs., 122 (Cal. As AEE, SZ {ZOU 0wm00mnsesssessonses s ss sms 5 A SS 0% 9 Seidman & Seidman v. Wolfson, 50 Cal. APP. 3d 826 (1975) neice eee eee ete steer eeeb beset e teeta eae eene 12 Tiri v. Lucky Chances, Inc., 226 Cal. APP. 4th 231 (2014). ueieeie ects eters sate eaters teeta sabe e nee eee as 6 Vianna v. Doctors’ Mgmt. Co., 27 Cal. App. 4th 1186 (1994)....coniiiiiieiieeeiee eects eters eee st ee sbae sabe a ee neee ns 5 Statutes 0 LTBI 85 nts sonst sss io 9m. 5050 AS A SS A FS SAR 5.55% 1 DQ ULS CL § eit eee steers eee e sate eee ee ebe eee abe ee erbe ee etae ae etre ee etae ee nsbeeeraeans 3,4,11 D0 TTB IC § 3 ssn wusnsmsnasiauiessossomsso smssssonsoomes as ahs 8535 AH A A538 NA SSA SHEAR SE AR 1,3,11, 12 O UL S.C. § d eeee eee eee ete h te sabe e ete e hte sabe ene e ete e hae enbe area enaens 3,5 42 U.S.C. § 18031 cuieieiiiie cities eee e settee etae estas a saaeessae esas ae esas ae esss ae sassae esse ae ssseae esse eessseensaees 10 5 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & Cal. Civ. Proc. Code § 1281 Cal. Civ. Proc. Code § 1290 6 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW MEMORANDUM OF POINTS AND AUTHORITIES Defendant Health Net of California, Inc. (“Health Net”) respectfully moves this Court pursuant to 9 U.S.C. section 1 (the “FAA”) and California Code of Civil Procedure sections 1281.2 and 1290 (the “California Arbitration Act”) for an order compelling arbitration of Plaintiff University of Southern California on behalf of its Keck Hospital of USC and on behalf of its USC Kenneth Jr. Cancer Hospital’s (“USC”) Complaint. Health Net further moves to stay this action pursuant to 9 U.S.C. section 3 and California Code of Civil Procedure section 1281.4. L INTRODUCTION On October 1, 2011, USC voluntarily entered into a Provider Participation Agreement (“Agreement”) with Health Net, pursuant to which it unequivocally agreed to arbitrate the very claims it has alleged against Health Net in this case. USC further agreed that an arbitrator-not a court-will resolve any disputes about the scope and validity of the arbitration agreement. Having agreed to these terms and after claiming the benefit of the parties’ contractual relationship for over eight years-and in the process collecting millions of dollars from Health Net under the Agreement-USC cannot now escape arbitration mandated by the very same Agreement. Nor is there any basis for USC to demonstrate that the arbitration provision in the Agreement is unconscionable or otherwise unenforceable to escape its terms. For these reasons, and as further discussed below, the Court should grant Health Net’s motion to compel arbitration and stay all proceedings in this case pending arbitration. II. STATEMENT OF FACTS A. USC Voluntarily Executed the Provider Participation Agreement. Effective October 1, 2011, USC entered into a Provider Participation Agreement (the “Agreement”) with Health Net. (Declaration of John Hall (“Hall Decl.”), Ex. A.) Pursuant to the terms of the Agreement, USC is required to provide health care services to Health Net members in exchange for Health Net's payments to USC at contracted rates set forth in the Agreement. Addendum A to the Agreement, for instance-which is titled “COMMERCIAL BENEFIT PROGRAMS”! expressly applies to: I A commercial health care plan is any plan that is provided and administered by a non- MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW Covered Services delivered to Beneficiaries covered by commercial Benefit Programs that include but are not limited, to HMO, PPO, EPO, POS, Salud Con Health Net (state-wide network), and any leased networks. All Covered Services delivered to a Beneficiary covered by a commercial Benefit Program shall be paid in accordance with this Addendum A regardless of product specific name. . .. (Id., Addendum A, § I (emphasis added).) Addendum A provides that “[a]s compensation for rendering Contracted Services to Beneficiaries covered by commercial HMO, PPO, EPO, POS and Leased PPO Benefit Programs under this Addendum A, Health Net shall pay and Provider shall accept as payment in full the rates set forth in Exhibit A-1.” (Id. at § III.) The parties have been operating under the terms of the Agreement, with various amendments, since 2011. B. The Agreement Contains a Broadly-Worded, Mandatory Arbitration Provision. The Agreement contains an arbitration provision, which provides, in pertinent part: Binding Arbitration. If the parties are unable to resolve a Dispute through the dispute resolution process set forth in Section 7.5, the parties agree that such Dispute shall be settled by final and binding arbitration, upon the motion of either party, under the appropriate rules of the AAA or JAMS, as agreed by the parties. . . . The parties expressly agree that the deadlines to file arbitration set forth above shall not be subject to waiver, tolling, alteration or modification of any kind or for any reason except for fraud. The failure to initiate arbitration before such deadlines shall mean the complaining party shall be barred forever from initiating such proceedings. All such arbitration proceedings shall be administered by the AAA or JAMS, as agreed by the parties. . . . The parties agree that the decision of the arbitrator shall be final and binding as to each of them. . . . The parties waiver their right to a jury or court trial. (Id., § 7.6 (emphasis in original).) The Agreement further provides, “The parties agree to use the dispute resolution process set forth in this Section 7.5, and binding arbitration as described in governmental entity, like Health Net. The term “commercial” distinguishes it from health plans administered, provided, or funded by a public or government program. See generally Fed. Trade Comm'n v. Sanford Health, Sanford Bismarck, No. 1:17-CV-133, 2017 WL 10810016, at *5 (D.N.D. Dec. 15, 2017), aff'd sub nom. Fed. Trade Comm'n v. Sanford Health, 926 F.3d 959 (8th Cir. 2019) (“[t]his case is focused on patients covered by commercial health insurance, i.e., those patients not covered by government programs uch as Medicare and Medicaid”). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW Section 7.6, as the final steps in resolving any Dispute.” (Id. at § 7.6.) The term “Dispute” is broadly defined in the Agreement to mean “any controversy or disagreement that may arise out of or relate to this Agreement, or the breach thereof, whether involving a claim in tort, contract or other applicable area of law.” (/d. at § 1.10.) Gs In Violation of the Agreement, USC Filed Suit Against Health Net. On November 6, 2019, USC filed a complaint in this Court. (See generally Compl.) USC’s Complaint alleges the following four causes of action against Health Net: (1) breach of implied-in-law contract; (2) breach of implied-in-fact contract; (3) quantum meruit; and (4) account stated. USC seeks damages for Health Net’s alleged “failure to fully reimburse [USC] for the medically necessary and physician ordered services provided to Defendants [sic] members.” (Compl. at 12.) Each and every one of USC’s claims arises from the Agreement with Health Net. Because USC’s claims arise from and relate to the Agreement, such claims are subject to mandatory arbitration under the parties’ arbitration agreement. D. USC Refused to Arbitrate. After the Complaint was filed, but before this motion was filed, Health Net’s counsel sent USC’s counsel a letter requesting that USC stipulate to arbitrate its claims and dismiss the Complaint. (Declaration of Brian Jazaeri (“Jazaeri Decl.”), {2, Ex. A.) USC refused. (/d. at 3, Ex. B.) III. THE COURT SHOULD COMPEL ALL CLAIMS TO ARBITRATION Given the existence of a valid arbitration agreement between the parties and the applicable federal law and California’s strong public policy favoring arbitration, the Court should order arbitration of USC’s lawsuit and stay all proceedings pending arbitration. A. The Agreement Is Enforceable Under the FAA and California Law. 1. The FAA Requires Arbitration of This Dispute. The FAA establishes the validity and enforceability of written agreements to arbitrate disputes. An arbitration agreement “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. Where, as 3 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW here, an action is based on a dispute covered by a valid agreement, a court must compel arbitration. 9 U.S.C. §8§ 3, 4; see also Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (1985) (“By its terms, the Act . . . mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed.”). The FAA requires enforcement of arbitration provisions contained in any contract “evidencing a transaction involving commerce.” 9 U.S.C. § 2. The words “involving commerce” are the functional equivalent to “affecting commerce” and signal the intent of Congress to exercise its commerce power to the fullest extent. See Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 111 (2001); Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 277 (1995). The FAA governs if the underlying contract facilitates interstate commerce transactions or directly or indirectly affects commerce between states. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401-02 (1967). The arbitration agreement at issue here is governed by the FAA because the Agreement, along with the parties’ activities under the Agreement, involves and affects commerce. USC's provision of health care services pursuant to the Agreement requires it to provide medications, equipment, and supplies to Health Net members, all of which implicate commerce. (See Hall Decl., Ex. A.) In addition, to provide access to medical services, Health Net enters into contracts with vendors and service providers operating on a national basis. (See id., 2.) Health Net arranges for interstate health care services and supplies for its members-including access to emergency services performed outside of California-and as a consequence, is itself a participant in interstate commerce. See id. at 7, Ex. C at p. 22; see also Summit Health, Ltd. v. Pinhas, 500 U.S. 322, 329 (1991) (Noting that a hospital’s parent corporation “is unquestionably engaged in interstate commerce. Moreover, although [the hospital’s] primary activity is the provision of health care services in a local market, it also engages in interstate commerce.”); accord Mount Diablo Med. Ctr. v. Health Net of Cal., Inc., 101 Cal. App. 4th 711, 718 n.5 (2002) (recognizing that because an agreement between Health Net and a different California hospital “requires, among other things, that [the hospital] provide medications and hospital supplies manufactured and distributed nationwide, the agreement at issue in this case involves interstate commerce” and 4 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW the FAA therefore applies); Erickson v. Aetna Health Plans of Cal., Inc., 71 Cal. App. 4th 646, 651 (1999) (arbitration provision was governed by the FAA because health care coverage required defendant to enter into “interstate contracts with vendors and service providers [that operated] on a national basis” and necessarily involved interstate commerce). Accordingly, the Agreement plainly affects interstate commerce and brings it within the ambit of the FAA. Ultimately, the FAA controls because the Agreement is a “contract evidencing a transaction involving commerce.” See Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 55 (2003). The FAA’s term “involving commerce” is interpreted broadly. Id. USC’s provision of health care services, medications, equipment, and supplies involves commerce sufficient for the FAA to apply. (See Hall Decl., Ex. A (Agreement).) 2, California Law Similarly Requires Arbitration of This Dispute. Like the FAA, California also has a “strong public policy in favor of arbitration,” embodied in the California Arbitration Act. Cal. Civ. Proc. Code § 1280 ef seq.; see also Moncharsh v. Heily & Blase, 3 Cal. 4th 1, 9 (1992). The Code of Civil Procedure mandates that courts direct the parties to arbitration on issues to which a signed arbitration agreement speaks. Cal. Civ. Proc. Code §§ 1281, 1281.2. And any doubts as to the scope of arbitrable issues should be resolved in favor of arbitration. Ruiz v. Sysco Food Servs., 122 Cal. App. 4th 520, 538 (2004) (“Both under the FAA and California law, arbitration is strongly favored, and any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” (internal quotations omitted)). As a result, “[a] heavy presumption weighs the scales in favor of arbitrability.” Cione v. Foresters Equity Servs., Inc., 58 Cal. App. 4th 625, 642 (1997); see also Buckhorn v. St. Jude Heritage Med. Grp., 121 Cal. App. 4th 1401, 1406 (2004) (noting all doubts must be resolved in favor of arbitration); Vianna v. Doctors’ Mgmt. Co., 27 Cal. App. 4th 1186, 1190 (1994) (unless party opposing arbitrations shows “that the arbitration clause clearly does not apply . . . the doubt must be resolved in favor of arbitration”). B. Arbitrability Is a Decision for the Arbitrator Here Because the Arbitration Provision Expressly Delegates the Gateway Issues. Because arbitration is a matter of contract, the FAA directs courts to compel arbitration 5 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW “in accordance with the terms of the agreement.” 9 U.S.C. § 4. “[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). Certain issues are presumptively reserved for the court. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002). These include “gateway” questions of arbitrability, such as “whether the parties have a valid arbitration agreement or are bound by a given arbitration clause, and whether an arbitration clause in a concededly binding contract applies to a given controversy.” Momot v. Mastro, 652 F.3d 982, 987 (9th Cir. 2011). United States Supreme Court precedent expressly holds that parties may delegate the adjudication of these gateway issues to the arbitrator if they “clearly and unmistakably” agree to do so. Howsam, 537 U.S. at 83 (citation omitted). As the United States Supreme Court recently made clear: When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless. Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 529 (2019) (emphasis added). Thus, the FAA plainly “allows parties to agree by contract that an arbitrator, rather than a court, will resolve threshold arbitrability questions as well as underlying merits disputes.” Id. at 527. California law is in accord. See Tiri v. Lucky Chances, Inc., 226 Cal. App. 4th 231, 241 (2014) (explaining that parties to an arbitration agreement may agree to delegate to the arbitrator questions regarding the enforceability of the agreement, and “can agree to arbitrate almost any dispute-even a dispute over whether the underlying dispute is subject to arbitration”). Here, the parties agreed that the arbitrator-not the Court-must decide arbitrability. Under controlling authority, the Agreement clearly and unmistakably delegates questions of arbitrability to the arbitrator by its express incorporation of either the AAA or JAMS rules when it states: [T]he parties agree that such Dispute shall be settled by final and binding arbitration . . . under the appropriate rules of the AAA or 6 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW JAMS . . .. All such arbitration proceedings shall be administered by the AAA or JAMS .... (Hall Decl., Ex. A, § 7.6.) There is no dispute that both the AAA and JAMS rules expressly delegate questions of arbitrability to the arbitrator. AAA Commercial Arbitration Rule 7(a) provides that “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” (Jazaeri Decl., Exs. C & D (AAA Commercial Arbitration Rule 7(a).) This rule is substantively identical to the jurisdiction rules of JAMS, where JAMS Comprehensive Arbitration Rule 11(b) provides that, “Jurisdictional and arbitrability disputes . . . shall be submitted to and ruled on by the Arbitrator. The Arbitrator has the authority to determine jurisdiction and arbitrability issues as a preliminary matter.” (Jazaeri Decl., Exs. E & F (JAMS Comprehensive Arbitration Rule 11(b).) In situations like this, the Ninth Circuit has held that a commercial contract’s incorporation of certain arbitral rules that expressly confer upon arbitrators the power to decide the issue of arbitrability constitutes “clear and unmistakable evidence that contracting parties agreed to arbitrate arbitrability.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (AAA rules); Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., 862 F.3d 981, 985 (9th Cir. 2017) (incorporation of International Chamber of Commerce rules constitutes clear and unmistakable evidence); Oracle Am., Inc. v. Myriad Grp. A.G., 724 F.3d 1069, 1077 (9th Cir. 2013) (incorporation of United Nations Commission on International Trade Law rules constitutes clear and unmistakable evidence); Caviani v. Mentor Graphics Corp., No. 19-CV-01645-EMC, 2019 WL 4470820, at *4 (N.D. Cal. Sept. 18, 2019) (“When a signed arbitration agreement includes a reference to specific arbitration rules-e.g., AAA, JAMS, etc.-the Ninth Circuit has held that the parties agreed to delegate arbitrability itself to the arbitrator.”); see also Belnap v. lasis Healthcare, 844 F.3d 1272, 1279 (10th Cir. 2017) (“We conclude that by incorporating the JAMS Rules into the Agreement, [the parties] evidenced a clear and unmistakable intent to delegate questions of arbitrability to an arbitrator.”); Cooper v. WestEnd Capital Mgmt., L.L.C., 832 F.3d 7 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 MORGAN, LEWIS Bockius LLP ATTORNEYS AT LAW ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 & 534, 546 (5th Cir. 2016) (“[T]he express adoption of [JAMS] rules presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”). California authority is in accord. E.g., Greenspan v. LADT, LLC, 185 Cal. App. 4th 1413, 1442 (2010) (“when . . . parties explicitly incorporate rules that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties’ intent to delegate such issues to an arbitrator”); Dream Theater, Inc. v. Dream Theater, 124 Cal. App. 4th 547, 557 (2004) (“It 1s difficult to imagine how parties could state any more comprehensively than they did in the Contract the intent to avoid litigation at every step of the dispute resolution process. The Contract provides that if a contested claim is not settled within the contractual deadline, then it must be submitted to binding arbitration in accordance with the AAA Commercial Arbitration Rules. These rules specify that the arbitrator will decide disputes over the scope of the arbitration agreement. We conclude that the parties' agreement to arbitrate according to this rule is clear and unmistakable evidence of the intent that the arbitrator will decide whether a Contested Claim is arbitrable.”); Aanderud v. Super. Ct., 13 Cal. App. 5th 880, 892 (2017) (“[a]n arbitration provision’s reference to, or incorporation of, arbitration rules that give the arbitrator the power or responsibility to decide issues of arbitrability may constitute clear and unmistakable evidence the parties intended the arbitrator to decide those issues”). The Agreement clearly and unmistakably delegates the arbitrability question to either an AAA or JAMS arbitrator. (See Hall Decl., Ex. A, § 7.6.) Accordingly, the Court should grant Health Net's petition without addressing gateway issues, which have been expressly reserved for the arbitrator. Henry Schein, 139 S. Ct. at 524 (“if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue”). C. The Arbitration Provision Is Valid and USC’s Claims Are Within Its Scope. Even if the Court were to find that the Court, rather than the arbitrator, should evaluate the enforceability and interpretation of the arbitration provisions-which the Court should decline to do pursuant to binding Supreme Court precedent given the parties’ clear delegation to the arbitrator-both of the “gateway” issues have been satisfied here, and thus, USC’s claims should be compelled to arbitration. 8 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW 1. USC’s Claims Are Covered by the Arbitration Provision. A claim is subject to arbitration “unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.” Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 419 (9th Cir. 1984) (internal quotations omitted). If this Court decides arbitrability, USC has the burden to demonstrate “with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage.” AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 650 (1986) (internal quotations omitted); see also Daugherty v. Experian Info. Sols., Inc., 847 F. Supp. 2d 1189, 1194 (N.D. Cal. 2012) (“The party resisting arbitration bears the burden of showing that the arbitration agreement is invalid or does not encompass the claims at issue.”). The bar for arbitrability is a “low” one. MoistTech Corp. v. Sensortech Sys., Inc., No. CV 15-4952 PA (JPRX), 2015 WL 12778416, at *4 (C.D. Cal. Sept. 14, 2015) (citing Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 721 (9th Cir. 1999)). “To require arbitration, [a claim’s] factual allegations need only ‘touch matters’ covered by the contract containing the arbitration clause and all doubts are to be resolved in favor of arbitrability.” Simula, 175 F.3d at 721. The arbitration provision at issue here is broadly worded and USC’s claims squarely fall within its scope. Under the arbitration provision, USC specifically agreed to arbitrate “any controversy or disagreement that may arise out of or relate to this Agreement, or the breach therefor, whether involving a claim in tort, contract or other applicable area of law” by “final and binding arbitration.” (Hall Decl., Ex. A, §§ 7.6, 1.10.) This is the epitome of a broad arbitration clause?, and it unquestionably requires arbitration of the claims in USC’s Complaint because they arise out of the Agreement. The crux of USC’s Complaint is that Health Net allegedly “failed to fully reimburse [USC] for the services provided to” Health Net members. (Compl., 7.) USC alleges that it and Health Net “are parties to other agreements for different lines of business”-an admission of the 2 See Kennedy, Cabot & Co. v. Nat’l Ass’n of Sec. Dealers, Inc., 41 Cal App. 4th 1167, 1175 (1996) (observing that an arbitration clause encompassing “any” dispute is “very broad”). MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW existence of the Agreement-but goes on to allege that it is “informed and believe[s] that no contract applies to Health Net Exchange members, these members are the subject of this complaint.” (Id. at 16.) While not defined anywhere in USC’s Complaint, an “Exchange” is basically a marketplace in each state created pursuant to The Patient Protection and Affordable Care Act that allows people to compare and purchase health plans, typically online. See King v. Burwell, 135 S. Ct. 2480, 2485 (2015); 42 U.S.C. § 18031(b)(1). Covered California is California’s official “Exchange” health plan marketplace, and Health Net offers individual commercial health plans through Covered California, including its commercial Community Care HMO product which applies to the majority of the claims in this action. (Hall Decl., 3; Declaration of Laura Ankney (“Ankney Decl.”), 2.) As a commercial health plan product-that is, a plan administered and funded by a private entity like Health Net, as opposed to the government-Health Net’s Community Care HMO plan squarely falls under Addendum A (“Commercial Benefit Programs”) of the parties’ Agreement. (Hall Decl., | 3-4.) Thus, it follows that the medical services provided to the members of Health Net’s Community Care HMO who received services from USC, and Health Net’s alleged obligation to reimburse USC for those services, implicate the terms of the parties” Agreement. (See id., Ex. A, Addendum A.) The present dispute, therefore, “touches on” the parties’ Agreement. In addition, the Excel spreadsheet sent by USC’s counsel containing the list of claims in this litigation includes patient claims involving commercial employer group HMO plans. (Ankney Decl., 3.) These are indisputably claims involving commercial HMO plans subject to the Agreement. (See id.) These patient claims do not implicate the Community Care HMO plan or any other plan offered through the Covered California “Exchange.” (See Hall Decl., 4.) USC cannot claim the benefit of the parties’ contractual relationship for over eight years, collect millions of dollars from Health Net under the Agreement and, at the same time, seek to dodge its contractual requirement to arbitrate the parties’ dispute. See Harris v. Super. Ct., 188 Cal. App. 3d 475, 479 (1986) (“acceptance of the benefit of a transaction constitutes consent to all the obligations arising from it,” including an obligation to arbitrate claims); Southland Corp. v. Keating, 465 U.S. 1,7 (1984) (“Contracts to arbitrate are not to be avoided by allowing one party 10 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW to ignore the contract and resort to the courts. Such a course could lead to prolonged litigation, one of the very risks the parties, by contracting for arbitration, sought to eliminate.”). USC should therefore be compelled to arbitrate its dispute as mandated by the parties’ Agreement, and pursuant to controlling federal and California law. 2, A Valid Agreement to Arbitrate Exists. Having shown that the arbitration provision in the Agreement applies to USC’s claims, it is USC’s burden to prove the agreement is invalid or unenforceable. Mission Viejo Emergency Med. Assoc., 197 Cal. App. 4th 1146, 1154 (2011); Engalla v. Permanente Medical Group, Inc., 15 Cal. 4th 951, 972 (1997) (“a party opposing the petition [to compel arbitration] bears the burden of proving by a preponderance of the evidence any fact necessary to its defense’). Under the FAA, agreements to arbitrate may be declared unenforceable only “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. “In determining the rights of parties to enforce an arbitration agreement within the FAA’s scope, courts apply state contract law while giving due regard to the federal policy favoring arbitration.” Pinnacle Museum Tower Assn. v. Pinnacle Mkt. Dev. (US), LLC, 55 Cal. 4th 223, 236 (2012) (citing Volt Info. Sciences v. Leland Stanford Jr. Univ., 489 U.S. 468, 474 (1989)). Under California law, “[b]oth procedural unconscionability and substantive unconscionability must be shown” for a court to refuse to enforce the arbitration agreement. Pinnacle Museum, 55 Cal. 4th at 247. USC cannot satisfy its burden of proving both procedural and substantive unconsionability, particularly where both parties to the Agreement are sophisticated corporate entities with extensive contract negotiation experience. The unambiguous language of the Agreement’s arbitration provision makes clear that the parties’ agreement to arbitrate is valid and enforceable. D. Litigation Should Be Stayed Pending Completion of Arbitration. Both federal and California law empower courts to dismiss or stay proceedings pending the completion of arbitration. See 9 U.S.C. § 3; Cal. Civ. Proc. Code § 1281.4. In fact, under the FAA, “[a] court must stay its proceedings if it is satisfied that an issue before it is arbitrable.” Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (emphasis added). And, 11 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 ~N O Y a B A W 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW pursuant to California Code of Civil Procedure section 1281.4, a stay of this action is mandatory upon a party’s application for order compelling arbitration. Cal. Civ. Proc. Code § 1281.4 (providing that the Court “shall, upon motion of a party to such action or proceeding, stay the action or proceeding until the application for an order to arbitrate is determined and, if arbitration of such controversy is ordered, until an arbitration is had”); see also Seidman & Seidman v. Wolfson, 50 Cal. App. 3d 826, 833 (1975) (“An application for an order to arbitrate is enough to compel a stay of the legal proceedings.”). Health Net respectfully requests that this action be stayed pending the Court’s resolution of the instant petition and, if granting, pending the completion of arbitration. “‘[T]he continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective,” a result expressly disfavored by the California Supreme Court. Cruz v PacifiCare Health Sys., Inc., 30 Cal. 4th 303, 320 (2003) (quoting Coast Plaza Doctors Hosp. v. Blue Cross of Cal., 83 Cal. App. 4th 677, 693 (2000)). See also 9 U.S.C. § 3 (where suit involves “any issue referable to arbitration,” court shall stay suit until arbitration is completed); Cal. Civ. Proc. Code § 1281.4. Accordingly, this Court should grant Health Net’s motion and issue an order requiring USC to arbitrate its claims. IV. CONCLUSION Under controlling law, the Agreement constitutes clear and unmistakable evidence that the parties agreed for the arbitrator to decide questions of Arbitrability. The Court should grant Health Net’s motion to compel arbitration and stay these proceedings until the arbitration is completed. Dated: March 26, 2020 MORGAN, LEWIS & BOCKIUS LLP By Sr a Molly Moriarty E Brian M. Jazaeri Taylor C. Day Attorneys for Defendant Health Net of California, Inc. 12 MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO COMPEL ARBITRATION DB2/ 37932281 A N nn W N 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 23 26 27 MORGAN, LEWIS & Bockius LLP ATTORNEYS AT LAW LOS ANGELES PROOF OF SERVICE BY MAIL I am a citizen of the United States and employed in Los Angeles County, California. I am over the age of eighteen years and not a party to the within-entitled action. My business address is 300 South Grand Avenue, Twenty-Second Floor, Los Angeles, CA 90071-3132. I am readily familiar with this firm’s practice for collection and processing of correspondence for mailing with the United States Postal Service. On March 27, 2020, I placed with this firm at the above address for deposit with the United States Postal Service a true and correct copy of the within document(s): MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF HEALTH NET OF CALIFORNIA, INC.’S PETITION TO COMPEL ARBITRATION AND MOTION TO STAY JUDICIAL PROCEEDINGS in a sealed envelope, postage fully paid, addressed as follows: Edward Stumpp Attorneys for Plaintiff Mikaela Cox Anthony Burrola HELTON LAW GROUP, APC 1590 Corporate Drive Costa Mesa, CA 92626 TELEPHONE: (562) 901-4499 FACSIMILE: (562) 901-4488 Following ordinary business practices, the envelope was sealed and placed for collection and mailing on this date, and would, in the ordinary course of business, be deposited with the United States Postal Service on this date. Executed on March 27, 2020 at Los Angeles, California. I declare under penalty of perjury under the laws of the State of California that the above is true and correct. i Christine Resendg?) MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PETITION TO COMPEL ARBITRATION DB2/ 37932281
