Smith v. Watanabe

Background

Grace Smith and Rawlings alleged that they were enrolled in small-group health insurance plans provided through their employers by Kaiser Foundation Health Plan, Inc. They challenged Kaiser’s wheelchair coverage, alleging that Kaiser’s qualified health plans either excluded wheelchairs or imposed a $2,000 annual limit and a home-use rule. They asserted a discrimination claim under Section 1557 of the Affordable Care Act and a claim under the Employee Retirement Income Security Act (ERISA) concerning Kaiser’s supplemental durable medical equipment coverage.

Kaiser moved to compel arbitration under arbitration provisions in the plaintiffs’ Evidence of Coverage documents. The provisions covered disputes relating to the Evidence of Coverage or the members’ relationship with Kaiser, including disputes concerning the coverage or delivery of services or items. The agreements also contained California choice-of-law provisions.

Court’s Analysis

The court found that the parties had valid arbitration agreements covering the plaintiffs’ claims against Kaiser. The court ruled that the Federal Arbitration Act applied because the contracts affected interstate commerce and the plaintiffs had not shown that Congress intended to bar arbitration of their Section 1557 claims.

The court rejected the plaintiffs’ argument that the arbitration agreements should be rescinded under California law. Under that law, an agreement is unenforceable as unconscionable only when it has both procedural and substantive unconscionability. The court found a minimal degree of procedural unconscionability because the agreements were presented on a take-it-or-leave-it basis, Kaiser had greater bargaining power, and the coverage documents were lengthy. But the court found no substantive unconscionability. It rejected the plaintiffs’ arguments that the arbitration tribunal was unfairly designed, that the arbitration process provided different rights and remedies than court proceedings, and that the absence of fee-shifting made the agreement unenforceable.

The court also found no indication that the arbitration agreement or the applicable rules prevented claimants from seeking injunctive relief. It ruled that the plaintiffs’ ERISA claims were arbitrable. The court concluded that the ERISA claims-procedure regulation concerned administrative review of benefit determinations and did not prohibit arbitration of statutory challenges. It also ruled that the Evidence of Coverage language allowing an ERISA civil action did not exempt the claims from arbitration.

Because the agreements were silent about class arbitration, the court ordered the plaintiffs’ claims to individual arbitration rather than class-wide arbitration.

Disposition

The court GRANTED Kaiser’s motion to compel arbitration and STAYED the claims against Kaiser pending arbitration. The court denied Kaiser’s request to stay the plaintiffs’ claims against the Department of Managed Health Care, which was not a party to the arbitration agreements. Kaiser’s alternative motion to dismiss was moot. The court required status reports about the arbitration every 120 days, beginning 120 days after the order, and required the parties to notify the court within 48 hours after the arbitration concluded.

Judge Haywood S. Gilliam, Jr. signed the order.