Petition for Writ of Certiorari — Blue Cross of California v. California Superior Court, Los Angeles County

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Supreme Court, U.S.

FILED

wo. 98 1686 APR 3 21999

OFFICE OF THE CLERK

In The

Supreme Court of the United States

October Term, 1998

BLUE CROSS OF CALIFORNIA, CALIFORNIACARE

HEALTH PLANS, WELLPOINT HEALTH NETWORKS

INC., A California Corporation,

Petitioners,

VS.

CALIFORNIA SUPERIOR COURT;

ELIZABETH FARQUHAR and LAURIE WINETT,

individually, on behalf of themselves and

all others similarly situated,

Respondents.

On Petition For A Writ Of Certiorari

To The California Court Of Appeal,

Second Appellate District

PETITION FOR A WRIT OF CERTIORARI

Harry W.R. CHAMBERLAIN II

(Counsel of Record)

GorDon E. BossERMAN

TERRENCE M. KING

GINSBURG, STEPHAN, ORINGHER

& RicHMAN

A Professional Corporation

10100 Santa Monica Boulevard,

8th Floor

Los Angeles, California 90067-4012

(310) 557-2009

Attorneys for Petitioners

Blue Cross of California, CaliforniaCare

Health Plans, WellPoint Health Networks Inc.,

A California Corporation

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTION PRESENTED

Whether the Federal Arbitration Act, 9 U.S.C. §1 et

seq., preempts a state court from requiring a party to an

arbitration agreement to litigate class action issues, when

enforcement of the agreement, as written, would require

individualized, not classwide arbitration?

PARTIES TO THE PROCEEDING

Petitioners Blue Cross of California, CaliforniaCare

Health Plans and WellPoint Health Networks Inc., a Cali-

fornia Corporation, and Respondents Superior Court of

the State of California for the County of Los Angeles and

Elizabeth Farquhar and Laurie Winett, individually, on

behalf of themselves and all others similarly situated as

members of a putative class action of subscribers to peti-

tioners’ health insurance plans, are the only parties to the

proceeding.

Pursuant to Rule 29.6, petitioners report that Blue

Ci_ss of California is an indirect wholly owned subsid-

iary of WellPoint Networks Inc. and appears as a suc-

cessor by merger to the interests of CaliforniaCare Health

Plans. Petitioner WellPoint Health Networks Inc. has the

following non-wholly owned subsidiaries: Unicare

National Capital Preferred Provider Organization;

National Capital Health Plan, Inc.; and The Industry

MSO, Inc.

SBOE WE aT ee NOs Hw ow

ili

TABLE OF CONTENTS

Page

CFU see UGE ce OGRIMMIN Ril Pnike doe edt un es 42 vb, n hoe ieee i

EPUEERG? BSP REAR FRU ERIIUNG oo cere c ccc cc cesses ii

EE SENN i vn eid n cbse O48 n.d «009 008 6 oN aib eee 1

ME Shs vag Chae he 0 rudd 0 oe arewine ea wey es 2

PERRET EP wee ei ese eee r alee ectdan veces 2

DEPAS PRU RGAAE BRAS GANOES s § 8c nie oe yao ogc av aineees 3

A. The Class Action Proceedings In The Trial

Court And Blue Cross’s Motion To Compel

PS i ikon Fae s 88S Ke Doiree ace bd ce

B. Proceedings In The California Court of

PO OE ho i dacs as spades Peeend CR eS O sees

REASONS FOR GRANTING THE WRIT ...........

I. The Preemption Issue Left Open By This Court In

Keating Is Now Well-Framed For Resolution .....

A. Purpose And Scope Of The FAA..........

B. Since Keating, An Established And Well Rea-

soned Majority Of Federal Court Decisions

Have Held That Class Litigation Procedures

Conflict With And Are Preempted By The

EE es si sions v0 en BA ACd e OKs 6 ce gies os

C. A Small Minority Of Contrary State Court

Decisions (Like The California Court Of

Appeal In This Case) Have Nevertheless

Approved Classwide Arbitration ..........

II. The California Court Of Appeal’s Rewriting of

the Parties’ Private Arbitration Agreements Is

Contrary To The Mandate Of The FAA Prohibit-

ing Any Impediments To Enforcement Of Con-

tracts According To Their Terms .............

Il.

TABLE OF CONTENTS -— Continued

Page

The Potential For “Differential Results” In State

And Federal Courts Applying The FAA Will

Continue To Exist If The California Court Of

Appeal’s Published Decision Is Allowed To

SUE Chae awk oye tha Ok ba dha ees eae ake

CAG RAAEAIEN <a Ke Ch On ReSRE SSIs ee eNeab ies we

APPENDIX

Opinion of the California Court of Appeal, 2d

Civil No. B122446, issued October 6, 1998.... App.

Court of Appeal’s Order to Show Cause

SSOUO FUNG TT; Soc tices eae ewdretueits App.

Order of Respondent Los Angeles County

Superior Court, Case No. BC179834, on Peti-

tion to Compel Arbitration and for Stay of

Proceedings entered March 2, 1998......... App.

Order of California Supreme Court Denying

Petition for Review, No. S074717, entered Jan-

UAEY TS, TPH sec cs ce ebas pc evnks cabeewe ie App.

stetttory AGCeIMUM: oo iss ies sik eae si App.

American Arbitration Association Commer-

CEB) AEPULAON TIO a6: 05. v5.5) 4 Cis io ebapaee App.

TABLE QF AUTHORITIES

Page

CASEs

Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265

Bh) Perea epee PERE er ernigmny sone Tere Cs 9, 18, 19, 26

American Centennial Ins. v. Nat'l Casualty Co., 951

Ue eee SS A i ee ara 3

Balfour, Guthrie & Co. v. Commercial Metals Co., 93

Wash.2d 199, 607 P.2d 856 (1980) .............. 14, 25

Baesler v. Continental Grain Co., 900 F.2d 1193 (8th

Rike ROMER s Whos Loews View atiav ieee eek eee. 3

Bay County Bldg. Authority v. Spence Bros., 140

Mich. App. 182, 362 N.W.2d 739 (1984) ........... 15

Board of Education v. Midwest Elec. Co., 1 Ohio

App.3d 37, 439 N.E.2d 425 (1980)...............5. 15

Blue Cross of California v. Superior Court, 67 Cal.

App. 4th 42, 78 Cal. Rptr. 2d 779 (1998) ........... 1

Champ v. Siegel Trading Co., Inc., 55 F.3d 269 (7th

a BONO Kvan Sica wading hans Boe ete cigs passim

Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282

SAE SR a csc kh uamcieken sha curyeoe sui Uc. 16

Consolidated Pacific Engineering, Inc. v. Greater

Anchorage Area Borough, 563 P.2d 252 (Alaska

sd of RPA EET? Se a oi ar eRe A sas Diy, Ga ie tafe ny 15

CRS Sirrine Engineers, Inc. v. Aetna Casualty &

Surety Co., 1997 U.S. Dist. LEXIS 3449, 1997 WL

SOO TE. DUR TORT) ee ee ye

Del E. Webb Constr. v. Richardson Hosp. Auth., 823

RRR Be LOWY es ORIN ee po ce Se Se er 3

Dickler v. Shearson Lehman Hutton, Inc., 408 Pa.

Super. 286, 596 A.2d 860 (1991)............ 14, 15, 16

TABLE OF AUTHORITIES — Continued

Page

Doctors’ Associates, Inc. v. Casarotto, 517 U.S. 681

(EPPO in cco eke Cats Cbd debts ck eee 19, 22, 23

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938

Ei exis’ oi va nk Oke Ras Eh Reh Codbeavean wend 10, 20

Gammaro v. Thorp Consumer Discount Co., 828

Peers O79 CED... WE. BRS) os oss ov cts wrdpenvegys 12

Government of United Kingdom v. Boeing Co., 998

Bd SB 0d Cs 190i os cess ie a echals awe 3

Howard v. Klynveld Peat Marwick Goerderler, 977

F.Supp. 656 (SAR Ie. Ma 2997) 66s is Cube ein Be hae ks 12

Izzy v. Mesquite Country Club, 186 Cal. App. 3d

1309, ao Cal. Rete. Dis CIGG is vie SOs BN Fadee ws es 14

Keating v. Superior Court, 31 Cal. 3d 584, 645 P.2d

1192, 183 Cal. Rptr. 360 (1982), rev'd in part and

appeal dismissed in part sub nom., Southland Corp.

p. Reatine, 4B 41.5. 3 CPO isis inkek 2dk Bs passim

Lewis v. Prudential Bache-Securities, Inc., 179 Cal.

App. 3d 935, 225 Cal. Rptr. 69 (1986)............. 14

Mago v. Shearson Lehman Hutton, Inc., 956 F.2d 932

(PU GN, SOOT is uae § 5 0nd vee Os Vanes eek een es 16

Mastrobuono v. Shearson Lehman Hutton, Inc., 514

Si ths' Cak CET a ok hed even ehkA eee Re SU; aks 2a, eo

McCarthy v. Providential Corp., 1994 U.S. Dist.

LEXIS 10122, 1994 WL 387852 (N.D. Cal. 1994)....1

Moses H. Cone Memorial Hosp. v. Mercury Constr.

Cote, S60 ALS. 1 Se56S ss ec cikinens ocho os 9g

New England Energy, Inc. v. Keystone Shipping Co.,

S55 F.2d 1 (ist Cir. 1988) ........ 3, 13, 15, 16, 17, 18

Vil

TABLE OF AUTHORITIES ~- Continued

Page

Perry v. Thomas, 482 U.S. 483 (1987)............... 9, 24

Protective Life Ins. Corp. v. Lincoln Nat'l Life Ins.

Corp., 673 Fae 261 ith Cis 1989) ..3.....:....... 3

Pueblo of Laguna v. Cillessen & Son, Inc., 101 N.M.

ues Ce Re OS RO one rk bok ec 15, 20

Rainwater v. National Home Ins. Co., 944 F.2d 190

ee Noele APRNs ca wb nbe ee eis Poker hk POR aks 22

Randolph v. Green Tree Fin. Corp., 991 F.Supp. 1410

SNORE UPR De ius uk ee beta tg re et rs 12

Slattery v. Marra Bros., 186 F.2d 134 (2d Cir. 5901)... 46

Southland Corp. v. Keating, 465 U.S. 1 (1984) ..9, 11, 25, 26

Stop & Shop Cos. v. Gilbane Bldg. Co., 364 Mass. 325,

EP EMREe MOD LADO DE iis ig cg, gee 15, 17, 20

Town of Danvers v. Wexler Constr. Co., 12 Mass.

App. Ct. 160, 422 N.E.2d 782 (1981) .............. 17

Volt Info. Sciences, Inc. v. Board of Trustees of Leland

Stanford, Jr. Univ., 489 U.S. 468 (1989).. 11, 12, 18, 22

Weyerhaeuser Co. v. Western Seas Shipping Co., 743

F.2d 635 (9th Cir. i teen, ee EE BO ED POR RE:, TES Wg

Ce INSTITUTIONS, STATUTES AND RULES

United States Constitution

PE ee se ee aye eS a

United States Code

Federal Arbitration Act

(July 30, 1947, ch. 392, 61 Stat. 669; 9 U.S.C. §1 et

on LEER SEERA E Ss Serene Om Ege Ps ee hay eee nee passim

Vill

TABLE OF AUTHORITIES - Continued

Page

KS tee Se oer rrr errr rer. passim

BE. * ach. EE Sr oe ter ey ree, er Zz, 15, 19

PF Uns awh acck sand Shit vas tees a: a, 42,15, 19,20

DF le REET 4 ba Raa 0a Sh aN ee SoA oe eo be

California Code of Civil Procedure

GAFG8L SS 6 occ cc beet ved ono ude ens Co EETT EET ETTEEECT 25

California Health & Safety Code

SESS Bis bi We aa ag ea a had ie 9a ba wee Me neds dha eaees

Massachusetts General Laws Annotated

Ch, eas hc Sisko ed be ne oo 4 Aa Ree ee aa aeks 17

American Arbitration Association Commercial

Arbitration Rules

eo. civk. seta ea bE OR ee 23

Gk. BREE AEG 23

eo a ee ee 20

MS ea ee a ee ee 23

Es cau i we ain baa ee ee 23

Wie oon eee 23

OS se ee 23

OB eee 25

TABLE OF AUTHORITIES — Continued

Page

Texts AND OTHER AUTHORITIES

Annot., State Court’s Power to Consolidate Arbitra-

tion Proceedings, 64 A.L.R. 3d 528 (1975) .......... 15

Knight, Fannin, et al., Cat. Prac. Guipe: ALTERNA-

tive Dispute Reso.ution (Rutter Group 1997)........ 6

Wright, Miller & Kane, Feperat Practice AND Pro-

CEDURE: Civit 2p (West’s 1986 & 1999 supp.)....... 24

PETITION FOR A WRIT OF CERTIORARI

Petitioners Blue Cross of California, CaliforniaCare

Health Plans and WellPoint Health Networks Inc. (collec-

tively “Blue Cross” or “petitioners”) respectfully petition

for a writ of certiorari to review a judgment of the Cali-

fornia Court of Appeal, Second Appellate District, Divi-

sion Five.

OPINIONS BELOW

The opinion of the California Court of Appeal, Sec-

ond Appellate District, Division Five issued on October 6,

1998 Appendix (“App.”) at App. 1 et seq., is reported as

Blue Cross of California v. Superior Court, 67 Cal. App. 4th

42, 78 Cal. Rptr. 2d 779 (1998) (hereafter abbreviated

“opn.”). The court of appeal’s order to show cause

directed to the respondent superior court was issued on

June 11, 1998, App. 37-38, and is unreported. The order of

respondent superior court in Los Angeles County Supe-

rior Court Case No. BC179834, entered March 2, 1998,

granting in part and denying in part, petitioners’ motion

to compel arbitration and to stay all proceedings in the

underlying action, App. 39-42, is unreported. The order

of the California Supreme Court denying petitioners’

petition for review was entered on January 13, 1999, App.

43, and is unreported.

ee ee a ee

JURISDICTION

This Court’s jurisdiction is invoked pursuant to 28

U.S.C. §1257(a). The judgment of the California court of

appeal was entered on October 6, 1998. (Opn. at App.

1-2.) The California Supreme Court’s order denying Blue

Cross’s petition for discretionary review in this matter

was entered on January 13, 1999 (App. 43.)

STATUTES INVOLVED

Section 2 of the FAA, 9 U.S.C. §2, provides in perti-

nent part: “A written provision in any .. . contract

evidencing a transaction involving interstate commerce to

settle by arbitration a controversy thereafter arising out

of such contract or transaction . . . shall be valid, irrevoca-

ble, and enforceable. .. . ” Section 4 of the FAA in “any

United States district court” and calls for the issuance of

an order “directing the parties to proceed to arbitration in

accordance with the terms of the agreement.” 9 U.S.C. §4

(emphasis added). Section 3 further requires a stay of

“any suit or proceeding .. . brought in any of the courts

of the United States upon an issue referable to arbitration

under an agreement in writing for such arbitration. .. . ”

Id. at §3. (See App. 44-47.)

Section 1283.1 of California’s Arbitration Act gener-

ally permits “consolidation” of arbitrations arising under

separate agreements to arbitrate “when: (1) Separate arbi-

tration agreements or proceedings exist between the same

parties; or one party is a party to a separate arbitration

agreement or proceeding with a third party; and (2) The

disputes arise from the same transactions or series of

related transactions; and (3) There is common issue or

issues of law or fact creating the possibility of conflicting

rulings by more than one arbitrator or panel of arbitra-

tors.” (App. 49-51.)

_ OF

STATEMENT OF THE CASE

Relying upon what it acknowledged was the minor-

ity view of a single federal circuit,’ the California court of

appeal rejected the position of seven other U.S. Courts of

Appeals, including the Ninth Circuit,2 that have held

consolidated or classwide arbitration cannot be ordered

under the Federal Arbitration Act (hereafter “FAA”)

where the agreement between the parties does not pro-

vide for such arbitration. The California court also pur-

ported to distinguish the federal majority rule on the

ground that it was based upon the provision in §4 of the

FAA, which requires federal courts to “direct{ ] the par-

ties to proceed to arbitration in accordance with the terms

of the agreement” to arbitrate, instead of §2 of the Act

' See New England Energy, Inc. v. Keystone Shipping Co., 855

F.2d 1, 5 (1st Cir. 1988) (hereafter “New England Energy”).

* See, e.g., Champ v. Siegel Trading Co., Inc., 55 F.3d 269,

274-75 (7th Cir. 1995); Baesler v. Continental Grain Co., 900 F.2d

1193, 1195 (8th Cir. 1990); Protective Life Ins. Corp. v. Lincoln Nat’!

Life Ins. Corp., 873 F.2d 281, 282 (11th Cir. 1989); Del E. Webb

Constr. v. Richardson Hosp. Auth., 823 F.2d 145, 150 (5th Cir.

1987); American Centennial Ins. v. Nat'l Casualty Co., 951 F.2d 107,

108 (6th Cir. 1991); Government of United Kingdom v. Boeing Co.;

998 F.2d 68, 74 (2d Cir. 1993); Weyerhaeuser Co. v. Western Seas

Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984).

which requires state and federal courts to hold that arbi-

tration agreements are “valid, irrevocable, and enforce-

able.” In so mandating judicially-supervised classwide

arbitration, the California court decided an issue which

this Court has previously addressed but has never

decided. Keating v. Superior Court, 31 Cal. 3d 584, 645 P.2d

1192, 183 Cal. Rptr. 360 (1982), rev'd in part and appeal

dismissed in part sub nom., Southland Corp. v. Keating, 465

U.S. 1, 8-9 & nn. 3-4 (1984) (hereafter “Keating”). This case

presents this Court with the opportunity to decide that

issue and to resolve the classwide abitration issue that

has divided the courts of appeals, and now threatens

differential results in state court proceedings brought to

enforce of arbitration agreements governed by the FAA as

written by the parties.

A. The Class Action Proceedings In The Trial

Court And Blue Cross’s Motion To Compel

Arbitration.

Elizabeth Farquhar and Laurie Winett (collectively

“Subscribers”) are subscribers to petitioners’ health

insurance plans who filed a class action complaint in the

California Superior Court for the County of Los Angeles

against Blue Cross of California, CaliforniaCare Health

Plans and WellPoint Health Networks (collectively “Blue

Cross”). Subscribers complained that Blue Cross’s indi-

vidual health care service plan agreements contained

standard form “waiting period” provisions which vio-

lated California Health & Safety Code §1357.51. (See App.

56-59.) The complaint asserted causes of action for breach

of contract and bad faith on behalf of subscribers, as well

as “all others similarly situated.” (Opn. at App. 2-4.)

The subscriber agreements each contained broadly

worded provisions requiring binding arbitration before

and under the rules of the American Arbitration Associa-

tion (“AAA”) of “[a]ny dispute between you and Blue

Cross of California and/or its affiliates... . ” (Opn. at

App. 2-4)° Accordingly, Blue Cross petitioned the respon-

dent superior court to compel arbitration of the individ-

ual disputes raised by the complaint and to stay all

judicial proceedings, i.e, those relating to the “class action”

claims. Blue Cross took the position, and Subscribers

agreed, that the arbitration clauses in the subscriber

agreements were governed by the FAA. (Opn. at App.

2-3) Blue Cross maintained that the superior court was

required to order individual arbitrations and had no

authority to proceed with class certification, or other

judicially supervised state law procedures, including

“classwide arbitration.” Blue Cross relied on the arbitra-

tion enforcement provisions of the FAA and federal court

decisions rendered since Keating (e.g., Champ v. Siegel

Trading Co., Inc., 55 F.3d 269 (7th Cir. 1995)), arguing that

under the comprehensive provisions of the FAA,

* Blue Cross’s “Prudent Buyer Plan Service Agreement and

Combined Evidence of Coverage and Disclosure Form” further

Stated that: “Any dispute or claim, of whatever nature, arising

out of, in connection with, or in relation to this Agreement or

breach thereof, or in relation to care or delivery of care,

including any claim based on contract, tort or statute, must be

resolved by arbitration if the amount sought exceeds the

jurisdictional limit of the small claims court.” (Opn. at App.

2-4.)

classwide arbitration was preempted absent an express ,

agreement of the parties authorizing such litigation-based

procedures. The AAA Commercial Arbitration Rules

which the agreements stipulated would govern the reso-

lution of “any dispute or claim”* do not provide for

classwide arbitration.

In response to those motions, the superior court

entered an order that (i) compelled binding arbitration

before the AAA of the individual claims raised by the

complaint; (ii) stayed all judicial proceedings as to those

individual claims; but (iii) denied the requested stay of

the class action proceedings; and (iv) expressly allowed

those class claims to proceed in the superior court,

including class-related discovery and class certification

proceedings. (Opn. at App. 3-4.) According to the supe-

rior court, because the FAA did not preclude a future

order permitting classwide arbitration of the class claims,

class-related discovery and certification proceedings

should go forward in the trial court pursuant to the

California Supreme Court's decision in Keating, 31 Cal. 3d

at 608-614, rev'd on other grounds, 465 U.S. at 16. (App.

39-42; Opn. at App. 3-4, 26-29.)

4 The California courts have long held that such “broad

form” arbitration agreements are enforceable according to their

terms, encompassing any equitable or legal disputes that would

otherwise be justiciable in a court of law. See generally Knight,

Fannin, et al., Cat. Prac. Gurpe: ALTERNATIVE DispuTE RESOLUTION,

WT 5.34-5.36 and Appendix D-57 (Rutter Group 1997).

Se ost Oe a, eee eae

B. Proceedings In The California Court of Appeal.

Blue Cross filed an original writ proceeding in the

court of appeal requesting a writ of mandate, prohibition

or other appropriate relief on the grounds that the

requested stay of all superior court proceedings was man-

dated under the FAA. The appellate court considered

briefs and heard oral argument of counsel for the parties,

and thereafter denied Blue Cross’s request for a peremp-

tory writ of mandate on October 6, 1998. (Opn. at App.

34-36.) In so doing, the court of appeal concluded the

FAA did not preempt California’s judicially crafted rule

permitting classwide arbitration. The opinion reasoned

that imposing classwide arbitration - although not

expressly contemplated in the parties’ agreements to arbi-

trate —- was not inconsistent with either California or

federal law governing private, contractual arbitration.

(Opn. at App. 33-36.)

In making that determination, the court suggested

that the writ of mandate proceeding gave rise to a ques-

tion of “first impression” after Keating which the United

States Su, reme Court had yet to reach. (Opn. at App. 2,

15-18) The opinion also noted that there was no dispute

that the FAA applied to the arbitration provisions at

issue, that the FAA required both state and federal courts

to enforce arbitration agreements according to their terms

and that state laws which conflicted with the fundamen-

tal purposes of the FAA were preempted. (Opn. at App.

2-5)

The court nonetheless held that California’s judicially

adopted classwide arbitration rule did not conflict with

the legislated policy underlying the FAA of “promoting

arbitration.” Instead, the opinion reasoned that, in appro-

priate cases, classwide arbitration actually furthered the

FAA’s policy even if not provided for in the arbitration

agreement. (Opn. at App. 15-18)

The court of appeal further held that the federal

precedents upon which Blue Cross relied were not appli-

cable in state court proceedings. Rather, California’s pro-

cedural rules governing arbitration — including the

Keating rule permitting classwide arbitration — should be

applied to the enforcement of the health plan arbitration

provisions in dispute, unless those state law procedures

conflicted with the FAA. As the court of appeal had

already concluded no conflict existed, it reasoned in the

alternative that California’s judicially created classwide

arbitration rule was not preempted by federal law. (Opn.

at App. 19-26.)

The California Supreme Court denied Blue Cross’s

petition for discretionary review on January 13, 1999.

(App. 43.)

REASONS FOR GRANTING THE WRIT

The decision of the California court in this case effec-

tively denies enforcement of the parties’ agreement to

arbitrate. Directing unwilling parties to participate in

“classwide” arbitration fundamentally alters the terms of

their agreement and is inconsistent with Congress’

expressed intent embodied in the FAA that arbitration

agreements be enforced as written. The petition presents

important questions of federal law due to the split

between the circuits — the First Circuit expressing the

view that consolidated arbitrations are not preempted

where state law permits consolidation of multiple dis-

putes without the parties’ consent, while seven other

circuits and a majority of states have held that neither

consolidation nor classwide arbitration may be ordered

consistent with the FAA’s enforcement scheme unless the

parties so agree.

The Preemption Issue Left Open By This Court In Keat-

ing Is Now Well-Framed For Resolution.

A. Purpose And Scope Of The FAA.

The FAA created a body of federal substantive law on

the question of arbitrability that preempts contrary state

law or policies under Article VI, Clause 2 of the United

States Constitution. Moses H. Cone Memorial Hosp. v. Mer-

cury Constr. Corp., 460 U.S. 1, 24 (1983); Keating, 464 U.S.

at 12.

Moreover, the mandates of the FAA have been

broadly interpreted in requiring that any “contract evi-

dencing a transaction involving interstate commerce to

settle by arbitration a controversy thereafter arising out

of such contract or transaction . . . shall be valid, irrevoca-

ble, and enforceable. ...” 9 U.S.C. §2. “Section 2 lof the

FAA] is a congressional declaration of a liberal federal

policy favoring arbitration agreements, notwithstanding

any state substantive or procedural policies to the con-

trary.” Perry v. Thomas, 482 U.S. 483, 490 (1987); Southland

Corp. v. Keating, 465 U.S. at 11-12; Allied-Bruce Terminix

Cos. v. Dobson, 513 U.S. 265, 270-72 (1995).

As this Court has explained on many occasions, the |

“enforcement of private agreements to arbitrate . . . acc-

ording to their terms” means just that — the parties, not

the courts or legislative bodies, are entitled to agree to

arbitrate and to select the procedures and remedies avail-

able to them when they do so. Mastrobuono v. Shearson

Lehman Hutton, Inc., 514 U.S. 52, 57 (1995). The parties

themselves confer jurisdiction on the arbitrator, and

when they have selected the procedures that will govern

their private arbitration proceedings, the FAA compels

the courts to respect the terms of their agreement. Ibid; see

also First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938,

943 (1995) (“the arbitrability of the merits of a dispute

depends upon whether the parties agreed to arbitrate that

dispute”) (emphasis added.) The parties themselves

appoint “who” will resolve their dispute, and they alone

retain the right to define the rules of procedure and

discovery (if any) that will govern the arbitration process

by the terms of their agreement. See Kaplan, 514 U.S. at

943-44.

Subscribers and Blue Cross contracted for the bene-

fits of private arbitration of “any” disputes arising out of

the health plan pursuant to the AAA Commercial Arbi-

tration Rules. Those rules do not provide for classwide

arbitration, and the majority of the federal courts of

appeals have held that such arbitration cannot be

imposed by the courts in these circumstances. See, ¢.g.,

Champ, 55 F.3d at 274-77. The California court of appeal

nonetheless upheld classwide arbitration, nothwithstand-

ing great weight of authority interpreting the FAA as

preempting such arbitration unless it is specifically pro-

vided for in the arbitration agreement. Ibid. In so doing,

2 ONE 4

the court of appeal ignored the fundamental principle

that state law is preempted if it “stands as an obstacle to

the accomplishment and execution of the full purposes

and objectives of Congress,” which it sought to achieve in

the FAA. See Volt Info. Sciences, Inc. v. Board of Trustees of

Leland Stanford, Jr. Univ., 489 U.S. 468, 477 (1989).

B. Since Keating, An Established And Well Rea-

soned Majority Of Federal Court Decisions

Have Held That Class Litigation Procedures

Conflict With And Are Preempted By The FAA.

This Court’s decision in Keating upheld Southland’s

challenge that the California Franchise Investment Law

conflicted with section 2 of the FAA, and thus violated

the Supremacy Clause, 465 U.S. at 9 & n. 4. Regarding the

precise constitutional question presented here — “whether

superimposing class-action procedures on contract arbi-

tration was contrary to the [FAA]” — this Court dismissed

Southland’s appeal because the franchisor had not prop-

erly opposed class arbitration procedures “on federal

grounds in the California Supreme Court.” Southland

Corp. v. Keating, 465 U.S. at 8-9 & nn. 3-4.

In the more than 15 years since, a number of federal

Circuit Court decisions have considered and squarely

addressed the preemption issue. Recently, the Seventh

Circuit in Champ, 55 F.3d 269 held: “Since the parties’

arbitration agreement does not expressly provide for

class arbitration, the district court correctly concluded

that it was prohibited from reading such a procedure into

those arbitration agreements.” Id. at 277. Requiring an

express agreement of the parties evidencing a manifest

intent to participate in classwide arbitration, the Champ

court viewed the issue as one of strict contract interpreta-

tion. According to Champ, strict construction of the con-

tract is the only outcome that is consistent with the

mandates of the FAA. 55 F.3d at 274-77, citing Volt, 489

U.S. at 478 (“[The] FAA requires courts to enforce pri-

vately negotiated agreements to arbitrate like other con-

tracts, in accordance with their terms.”)(emphasis added).)

The Champ court likewise refused to recognize

classwide arbitration in the absence of a federal statutory

basis or express agreement authorizing that procedure. 55

F.3d at 274-75. In addition to Champ, the Circuit Courts of

Appeals and district courts in at least six other Circuits

(including the Ninth Circuit) have confronted the same

issue in the context of continuing multiple arbitrations

arising under separate agreements, reaching the same

conclusion.°

> The Courts of Appeals decisions are cited at note 2 supra;

see also Randolph v. Green Tree Fin. Corp., 991 F.Supp. 1410,

1423-24 (M.D. Ala. 1997) (under FAA, court can only enforce

arbitration agreement as parties wrote it and agreement in issue

made no provision for class action treatment); Howard v.

Klynveld Peat Marwick Goerderler, 977 F.Supp. 654, 665, n. 7

(S.D.N.Y. 1997) (a plaintiff who has agreed to arbitrate all claims

arising out of her employment may not avoid arbitration by

pursuing class claims — such claims must be pursued in non-

class arbitration); Gammaro v. Thorp Consumer Discount Co., 828

F.Supp. 673, 674 (D. Minn. 1993) (under §4 of the FAA, court is

required to give effect to parties’ arbitration agreement, and the

agreement in issue made no provision for classwide

arbitration); accord McCarthy v. Providential Corp., 1994 U.S. Dist.

LEXIS 10122 at *7-*9, 1994 WL 387852 at *2-*3 (N.D. Cal. 1994)

(under §2 of the FAA, absent provision authorizing classwide

arbitration, court had no authority to order arbitration to

proceed as a class action under state or federal law).

Based upon this substantial body of authority, the

opinion cannot be reconciled with the fundamental prin-

ciple that arbitration clauses will be enforced strictly

according to their terms. Absent an express agreement

providing for classwide arbitration, a court interpreting

an arbitration agreement which is subject to the FAA has

no authority to compel such a procedure to go forward in

arbitration. Despite these significant developments in the

case law interpreting the preemptive effect of the FAA

since the time Keating was decided, the court of appeal

opted to superimpose California’s “classwide arbitration”

doctrine upon the arbitration provisions of the Blue Cross

health plan contracts.

C. A Small Minority Of Contrary Circuit Court

And State Court Decisions (Like The California

Court Of Appeal In This Case) Have Neverthe-

less Approved Classwide Arbitration.

Only the First Circuit has held that a district court

may order consolidated arbitration, even though such

action is not expressly authorized in the parties’ agree-

ment, and then only where underlying state arbitration

law specifically authorizes consolidated arbitration. See

New England Energy, 855 F.2d at 5. Even so, Champ con-

cluded that in light of the past decade of case law uni-

formly interpreting the FAA, “we need not determine

whether we would follow the First Circuit’s holding,

although we have our doubts about its continued val-

idity.” Champ, 55 F.3d at 275, n. 5 (see also note 9 infra).

The California court of appeal appears to be the first

state court to follow the minority view of the First Circuit

as authorizing an even more extreme form of consolida-

tion — “classwide arbitration.” Before the present case, at

least two other intermediate California appellate courts in

Izzy v. Mesquite Country Club, 186 Cal. App. 3d 1309,

1318-1322, 231 Cal. Rptr. 315, 319-22 (1986) and Lewis v.

Prudential Bache-Securities, Inc., 179 Cal. App. 3d 935, 938,

945-46, 225 Cal. Rptr. 69, 70-71, 75-76 (1986), had reached

the same conclusion.

Apart from the California cases, apparently only the

Pennsylvania Superior Court’s Appellate Division has

ruled that an arbitration agreement enforceable under the

FAA may be interpreted to include classwide arbitration.

Dickler v. Shearson Lehman Hutton, Inc., 408 Pa. Super. 286,

596 A.2d 860, 862-63 (1991), appeal denied, 532 Pa. 663, 616

A.2d 984 (1992).

In other states, even where the courts have inter-

preted arbitration agreements that are not necessarily

controlled by the enforcement provisions of the FAA,

many cases have found that ordering “consolidation” of

arbitrations arising out of separate contracts and separate

disputes amounts to an impermissible rewriting of the

parties’ arbitration agreement. For example, the Washing-

ton Supreme Court in Balfour, Guthrie & Co., Ltd. v. Com-

mercial Metals Co., 93 Wash.2d 199, 203, 607 P.2d 856, 858

(1980) stated the rule as follows:

It appears that the [American] Arbitration Asso-

ciation has had a long-established policy of not

approving consolidation without the written

consent of all parties. We believe that one enter-

ing into a contract such as the one at issue here

would reasonably expect that consolidation

could only take place with such written con-

sents. .. . If the parties wish to provide for the

a a aie

possibility of consolidated arbitration in their

contracts, the courts will, of course, give effect

to their decision. If the parties to separate con-

tracts all consented to consolidated arbitration,

the arbitral award would be subject to judicial

confirmation and enforcement. But however

sound they may consider consolidated arbitra-

tion to be as a matter of policy, courts are not

empowered to direct parties to undertake it

when one of them objects. (Citing Consolidated

Pacific Engineering, Inc. v. Greater Anchorage Area

Borough, 563 P.2d 252, 255 (Alaska 1977)).®

The court of appeal’s published opinion in the pre-

sent action chose to embrace the reasoning of Dickler and

the First Circuit’s questioned minority view in New Eng-

land Energy, eschewing the overwhelming weight of

authority to the contrary. (See notes 2, 6 supra and accom-

panying text; Champ, 55 F.3d at 275, n. 2.) The court of

6 Accord Board of Education v. Midwest Electric Co., 1 Ohio

App.3d 37, 38-39, 439 N.E.2d 425, 427 (1980) (parties to separate

arbitration agreements under AAA rules did not consent to

“consolidation” of arbitration where their agreements

contained no language approving of that procedure); Bay

County Bldg. Authority v. Spence Bros., 140 Mich. App. 182, 187,

362 N.W.2d 739, 741 (1984) (where separate arbitration contracts

were silent on the subject of consolidation “the courts may not

alter the arbitration terms the parties have inserted in their

contract”); Stop & Shop Cos. v. Gilbane Bldg. Co., 364 Mass. 325,

329, 304 N.E.2d 429, 432 (1973); Pueblo of Laguna v. Cillessen &

Son, Inc., 101 N.M. 341, 344, 682 P.2d 197, 200 (1984); see generally

Annot., State Court’s Power to Consolidate Arbitration Proceedings,

64 A.L.R. 3d 528 (1975) at §4 (digesting cases); but see contra id. at

§3 (digesting intra-state arbitration contract cases ordering

“consolidation in absence of showing of prejudice”).

———E

appeal’s justification for classwide arbitration is essen-

tially two-fold: (1) compelling individual arbitration

would be unfair to individuals “bound by adhesion form

contracts to arbitration agreements”” and, (2) because

“consolidating two arbitrations” would not be inconsis-

tent with the FAA, classwide arbitrations likewise should

not be prohibited.* A significant number of jurisdictions

applying the FAA have rejected both of these proposi-

tions.

Regarding the “adhesion contract” rationale offered

by the opinion, the Ninth Circuit (like most other circuits)

has held to the contrary: “State law adhesion principles

may not be invoked to bar arbitrability of disputes under

the [Federal] Arbitration Act.” Mago v. Shearson Lehman

Hutton, Inc., 956 F.2d 932, 934 (9th Cir. 1991) (brackets in

original); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d

282, 285 (9th Cir. 1988). Moreover, adding a “consolida-

tion” term where the parties have not agreed to it violates

the rule placing arbitration agreements “on equal foot-

ing” with other contracts. Champ, 55 F.3d at 275;

7 Opn. at App. 15-18 & n. 5; citing Dickler, 596 A.2d at 867

(emphasis added).

8 Opn. at App. 23-26; citing New England Energy, 855 F.2d at

3 (emphasis added). The logic behind this justification for the

Keating rule calls to mind Judge Learned Hand’s comparison

between indemnity and contribution: “[Classwide arbitration]

is only an extreme form of [consolidation].” Slattery v. Marra

Bros., 186 F.2d 134, 138 (2d Cir. 1951). The fundamental

difference is that, here, the parties to the arbitration contracts

did not agree to “consolidation” or the even more extreme

“class” procedure.

EEO E IR R. SAE EAS eh AU Bd NO

eee ae Sad

Tt de

aes

Ae eS

Weyerhaeuser Co. v. Western Lines Shipping Co., 743 F.2d at

637.

The court of appeal’s alternative basis for distin-

guishing Champ and numerous other post-Keating deci-

sions — on the ground that the California Arbitration Act

permits “consolidation” of arbitrations whereas federal

law does not - is entirely beside the point. (Cf. Opn. at

App. 23-26) The only issue is whether these parties agreed

to incorporate litigation-based “classwide” procedures in

their private arbitration agreements.? Not even respon-

dents contend that they did.

* The First Circuit in New England Energy similarly

reasoned that Massachusetts consolidated arbitration statute,

Mass. Gen. Laws Ann. ch. 251, §2A (App. 60-61), should be

given precedence in a case within the purview of the FAA. 855

F.2d at 5. However, New England Energy’s majority opinion

apparently failed to consider the views of the Massachusetts

courts on the subject. Nowhere is any mention made of the

Massachusetts Supreme Judicial Court’s limitation upon

consolidating arbitrations without the consent of all parties.

Stop & Shop Cos. v. Gilbane Bldg. Co., 364 Mass. at 329, 304 N.E.2d

at 432. That rule continued to be followed after the enactment of

Massachusetts Uniform Arbitration Act §2A in 1977. See, e.g.,

Town of Danvers v. Wexler Constr. Co., 12 Mass. App. Ct. 160,

166-67, 422 N.E.2d 782, 786 (1981) (courts should not “disregard

the method specifically chosen by the parties to settle all their

disputes and which would judicially rewrite their contract for

them. . . . [A] court may not order consolidated arbitration

without an agreement therefor, even though it would result in

more efficient management of the case”) [citing Stop & Shop Cos.;

footnote and other internal citations omitted]); CRS Sirrine

Engineers, Inc. v. Aetna Casualty & Surety Co., 1997 U.S. Dist.

LEXIS 3449 at *10-*12, 1997 WL 136335 at *4 (D. Mass. 1997)

(Mass. Uniform Arbitration Act §2A “may not be exercised to

vary the parties’ agreements”).

The public policies articulated in Champ and similar |

cases of upholding the right of the parties to specify the

procedures that will govern any dispute (in this case, the

Commercial Arbitration Rules of the AAA), dictate that

giving priority to their freedom to contract is the only

outcome which comports with the “full purposes and

objectives of Congress” when enacting the FAA. (Opn. at

App. 10; citing Volt, 439 U.S. at 477.)

Il.

The California Court Of Appeal’s Rewriting of the Par-

ties’ Private Arbitration Agreements Is Contrary To The

Mandate Of The FAA Prohibiting Any Impediments To

Enforcement Of Contracts According To Their Terms.

At first blush, the court of appeal does not appear to

take issue with the basic premise that the FAA requires

both the state and federal courts to enforce the parties’

agreements to arbitrate according to their terms. (Opn. at

App. 9-12.) The opinion acknowledges that this Court has

delineated the scope of section 2 preemption as placing

“arbitration agreements on an equal footing with con-

tracts generally.” (Opn. at App. 10-11; citing Allied-Bruce,

The dissent of Judge Seyla in New England Energy is on the

mark: “Both [of the separate arbitration agreements involve

somewhat different parties,] contain arbitral clauses and are,

concededly, subject to the Act. *** [{] The Federal Arbitration

Act necessitates that we enforce the parties’ bargain as they

wrote it — nothing more. Neither the language of the statute nor

the decisions of the Supreme Court leave the door ajar for

reshaping the bargain based on state law.” 855 F.2d at 9-10

(Seyla, J., dissenting) (brackets added); accord Champ, 55 F.3d at

277.

a eae

513 U.S. at 270-71.) “Thus, generally applicable contract

defenses, such as fraud, duress or unconscionability, may

be applied to invalidate arbitration agreements without

contravening §2.” Doctors’ Associates, Inc. v. Casarotto, 517

U.S. 681, 684-85 (1996) (hereafter “Doctors’ Assocs.”)

(internal citation omitted). On the other hand, “any state

law that invalidates the express terms of an arbitration

agreement is preempted by the act... . Also, a state law

requiring judicial consideration of a claim contrary to

the parties’ agreement to arbitrate that claim directly

conflicts with the [FAA] and violates the Supremacy

Clause.” (Opn. at App. 11 (emphasis added).)

Nevertheless, according to the California court of

appeal, “the United States Supreme Court has repeatedly

indicated that sections 3 and 4 of the [FAA] do not apply

in state courts.” (Opn. at App. 26-27.) On that basis, the

court disagreed with “the reasoning of the federal circuit

court decisions [such as Champ] on classwide and consoli-

dated arbitrations [which] turns on section 4 of the

[FAA].” (Opn. at App. 26-27 (bracketed text added)).

The court of appeal’s analysis in this regard is

flawed. That court wrongly assumed that the classwide

arbitration issue turns on the applicability of §4 of the

FAA to state court proceedings. However, this Court in

Volt left open the question whether “§§3 and 4 of the FAA

are fully applicable in state-court proceedings,” 489 U.S.

at 477, but nonetheless held, in a case decided solely

under §2 of the FAA as it applied to state court proceed-

ings, that the Act “simply requires courts to enforce pri-

vately negotiated agreements to arbitrate, like other

contracts, in accordance with their terms.” Id. at 478

(emphasis added).

Thus, under either §2 or §4 of the FAA, the question

properly should have been phrased as a simple matter of

contract interpretation: “The plain meaning of the con-

tractual language here indicates that the parties did not

contemplate consolidated arbitration.” Pueblo of Laguna v.

Cillessen & Son, Inc., 101 N.M. at 344, 682 P.2d at 290. As

the Massachusetts Supreme Judicial Court aptly stated,

“arbitration, once undertaken, should continue freely

without being subjected to a judicial restraint which

would tend to render the proceedings neither one thing

nor the other, but transform them into a hybrid, part

judicial and part arbitrational.” Stop & Shop Cos. v. Gilbane

Bldg. Co., 364 Mass. at 329, 304 N.E.2d at 432 (see also

notes 6 and 9 supra and accompanying text).

The court of appeal has profoundly changed the

nature and the scope of the parties’ agreement to arbi-

trate in the following material respects:

Judicial Supervision Imposed Over The Arbitrator’s

“Jurisdiction.” By the terms of their private agreement,

the arbitrator’s “jurisdiction” is limited to that granted by

the parties, whereas the “classwide arbitration” rule

applied by the court of appeal seemingly has no limits.

Under the AAA Commercial Rules, the arbitrator “shall

have the power to rule on his or her jurisdiction” includ-

ing any objections to the nature and scope of the dispute

to be resolved privately between the parties. (AAA Com-

mercial Arbitration Rules, §R-8(a)-(c) [App. 64-65];

Kaplan, 514 U.S. at 943-44 (“a court must defer to an

eT eT

TE eRe Ee ae Ee Ee Ne mee ORS a Foe ee ane fad i i s Pe yee, ah rite Te

a te Sahay’ Sia shia REG ase a . sy tn oe eR Sal cab on esas tat

arbitrator’s arbitrability decision when the parties sub-

mitted that matter to arbitration”).)

The changes in the basic terms of the agreement to

arbitrate are so fundamental that, before ordering

classwide arbitration, the California courts propose the

following “option” be offered to the non-consenting

party: “Whether classwide proceedings would prejudice

the legitimate interests of the party who drafted the adhe-

sion agreement must also be considered, and that party

should be given the option of remaining in court rather than

submitting to classwide arbitration.” Keating, 31 Cal. 3d at

613-614 (emphasis added). (See also Opn. at App. 16-18.)

In the present action, a court has overridden the

procedure of arbitration for resolving individual disputes

arising under Blue Cross health service plans with con-

siderable judicial involvement; including, the superior

court’s administration and oversight of class certification,

definition of the scope of the class membership and

issues, notification to potential class members and

classwide discovery, and who will bear the ultimate costs

and other financial burdens of this non-consensual judi-

cial process. Cf. Mastrobuono, 514 U.S. at 58.

The “Classwide” Rule Fundamentally Alters The

Rules Of Procedure Stipulated By The Contract. The sub-

stantial weight of well-reasoned authority recognizes that

such “class” procedures are not contemplated by private

arbitration agreements. Here, the parties selected a pri-

vate forum for resolution of their disputes: The American

Arbitration Association. They specified the AAA Com-

mercial Arbitration Rules as the procedures to govern

——————

that process. Under the FAA, the agreements are enforce-

able according to their terms. See Rainwater v. Nat'l Home

Ins. Co., 944 F.2d 190, 193 (4th Cir. 1991) (identification of

“AAA rules” was all that was required under the FAA to

specify the intent to arbitrate and the applicable pro-

cedures sufficient to enforce the parties’ right to compel

binding arbitration of all disputes under their contract).

The California court of appeal itself correctly

observed, “There has been no finding in the present case

that the parties expressly agreed to incorporate Califor-

nia’s arbitration rules into their agreements. Contrary to

plaintiffs’ assertion, Volt does not compel this court to

conclude that by virtue of the choice-of-law provision in

the underlying health insuring agreements the parties

agreed California’s classwide arbitration rule would gov-

ern this case.” (Opn. at App. 30, n. 8; accord Mastrobuono,

514 U.S. at 58-60 & n. 4.) Here, unlike Volt, the parties did

not agree the California Arbitration Act would govern.

Instead, they specified the AAA’s Commercial Arbitration

Rules. The FAA requires their agreement be honored.

Doctors’ Assocs., 517 U.S. at 688 (state procedures allowed,

provided that “applying the state rule would not ‘under-

mine the goals and policies of the FAA’” governing

enforcement of contracts generally).!°

10 What the opinion characterizes as a “concession” by Blue

Cross at oral argument — that a “consolidated arbitration” under

state law would be allowable in a case within the purview of the

FAA — is not a concession at all. (Opn. at App. 25, n. 6.) The

parties may agree to adopt state-based procedures (including

consolidation or classwide arbitration) if their agreement so

provides; but in the absence of such an agreement, they do not

have to set forth in the negative each of those procedures to

—

‘Reo

cr SENT

Selection Of Arbitrators. Each member of the as-yet

undefined “class” of contestants has entered into a sepa-

rate agreement with Blue Cross. Under the AAA’s stipu-

lated method of selection, each party is entitled to review

a list of approved arbitrators, each may “strike” the name

of any arbitrator who is deemed unacceptable and then

list in order of preference the remaining candidates avail-

able for selection. (AAA Commercial Arbitration Rules,

§§R-4, R-13 to R-15, R-17 [App. 63-67].) By definition,

because each separate dispute entails a different method

for selecting the arbitrator(s), the California courts may

not provide “a different standard of reference than these

parties agreed to, and [that standard] may not be used to

change the rules which the parties stipulated should

apply” to the selection of their decision-maker. See, e.g.,

CRS Sirrine Engineers, Inc., 1997 U.S. Dist. LEXIS 3449 at

"10-712, 1997 WL 136335 at *4; Doctors’ Assocs., 517 U.S. at

684-85; and discussion at notes 6-9 supra.

Binding Adjudication Of “Claims” On Behalf Of

Absent Class Members. By expanding the scope of these

individual disputes to encompass a “class,” the California

courts have lost sight of the fact that the parties who were

actually before them did not agree, implicitly or explicitly,

that different procedures “requirling] a judicial forum for

the resolution of claims” could be imposed without their

consent. (Opn. at App. 10-12 (italics in original).)

which they have not agreed. Mastrobuono, 514 U.S. at 58; AAA

Commercial Arbitration Rules §R-1 (“The parties, by written

agreement, may vary the procedures set forth in these rules.”)

(Opn. at App. 10-12.)

Although touted as a rule of fairness for class liti-

gants, including defendants, the doctrine that class mem-

bers (e.g., those who do not “opt out” after notice of the

proceedings) may be bound by a final judgment, further

demonstrates just how fundamentally California’s

classwide rule alters the fabric of the contract. Wright,

Miller & Kane, Feperat Practice AND Procepure: Crvit 2p

§1789 et seq. (West’s 1986 & 1999 supp.). Whether or not

absent class members actually “consented” to participate,

they are required to have their claims first defined by a

judge in a judicial forum, then adjudicated and deter-

mined by an arbitrator whom they did not participate in

selecting.

Blue Cross’s right to arbitrate individual claims aris-

ing under its health plans with only those Subscribers

who have actually lodged complaints likewise is effec-

tively thwarted. This incongruous result cannot be recon-

ciled with the FAA requiring enforcement of the parties’

agreed procedures.!!

“Discovery” Regarding Classwide Issues And Class

Certification. The court of appeal has added another

material term to agreements before it; an implicit agree-

ment to participate in “discovery” for the purpose of

defining the scope of the issues and membership of the

classwide arbitration — including judicial supervision of

11 It makes no difference whether the right to arbitrate is

defined as “substantive” or “procedural” under the FAA. Perry

v. Thomas, 482 U.S. at 490. Contrary to the court of appeal’s

analysis, the FAA requires the parties to proceed “in accordance

with the terms” of the agreement to arbitrate as written. (Cf.

opn. at App. 26-29.)

RBI TE Ba SE ta ENR ARCA EAC ASA SOST EE IBS UAE DAE ib RECA aii

ODMR BE SAR i CH ae

class discovery procedures and ultimately class certifica-

tion “if appropriate” as ordered by the superior court.

These “discovery” proceedings are ostensibly imposed by

analogy to the rules governing “consolidation” of sepa-

rate arbitrations under California Code of Civil Procedure

§1281.3. (Opn. at App. 21-26.) However, even as a thresh-

old matter, “discovery” fundamentally conflicts with the

FAA by contravening the contract as written.

The AAA Commercial Arbitration Rules authorize

the arbitrator to require informal “exchanges of informa-

tion” and “witness lists,” but not formal “discovery” as

respondent superior court contemplates in connection

with the classwide arbitration procedures it has crafted.

Cf. AAA Commercial Arbitration Rules, §R-23 (App.

67).12

III.

The Potential For “Differential Results” In State And

Federal Courts Applying The FAA Will Continue To

Exist If The California Court Of Appeal’s Published

Decision Is Allowed To Stand.

Federal and state courts have concurrent jurisdiction

under the “substantive rule” of enforcement created by

the FAA which is “applicable in state as well as federal

courts.” Southland Corp. v. Keating, 465 U.S. at 15-16. How-

ever, the FAA does not enlarge federal court subject mat-

ter jurisdiction. Unless a “federal question” or “diversity

'2 “Discovery on the subject matter of the dispute to be

arbitrated generally has been denied.” Balfour, Guthrie & Co.,

Ltd. v. Commercial Metals Co., 93 Wash. 2d at 203-204, 607 P.2d at

858 (internal citations and quotation marks omitted).

of citizenship” is established, a petition to compel

enforcement of the arbitration contract cannot be filed in

a federal court. Id. at 16, n. 9. Consequently, the over-

whelming majority of arbitration enforcement proceed-

ings, as in this case, are conducted by state courts. Id. at

16, n. 8.

The court of appeal recognized that the FAA “pre-

empts state anti-arbitration law so as to prevent state and

federal courts from reaching different results about the val-

idity and enforceability of arbitration agreements in similar

cases.” (Opn. at App. 10-11; citing Allied-Bruce, 513 U.S. at

271-72 (emphasis added).) However, the court of appeal’s

opinion creates the obvious potential for such differential

outcomes in state and federal courts by superimposing

California’s classwide arbitration procedure on the pri-

vate agreements of the parties. Cf. Southland Corp. v.

Keating, 465 U.S. at 8-9 & fns. 3-4. (Opn. at App. 34-36.)

If the Subscribers had filed suit down the block from

the Los Angeles Superior Court in a federal district court

for the Central District of California, the district judge

hearing the motion to compel arbitration would have

been bound to follow Champ (and the earlier Ninth Cir-

cuit precedent upon which Champ based its sound ratio-

nale), in rejecting any notion of classwide arbitration.

(See, e.g., notes 2-9 supra and accompanying text.) By

contrast, under the result reached by the California court

of appeal, those same parties are being ordered to pro-

ceed with class-related discovery in the superior court,

and to go forward with a class certification motion in that

court, all with an eye toward an ultimate order directing

a classwide arbitration —- an outcome manifestly different

than the purely private arbitration of individual claims

before the AAA contemplated by their agreements.

Such fundamental differences in the outcome of the

petitioners’ hypothetical motions to compel arbitration,

depending upon whether Subscribers’ class action claims

were brought in state or federal court, illustrate the

essential problems with the decision below and under-

score the reasons why this Court should grant the relief

prayed for in this petition.

CONCLUSION

The kind of coercive renegotiation of the parties’

right to arbitrate that occurred here evidences the “judi-

cial hostility to arbitration agreements” that the FAA was

intended to remedy. (Opn. at App. 6; see also notes 5-9

supra and accompanying text.) The California court's

opinion presents litigants who wish to avoid arbitration

obligations with an unbargained-for expedient — they can

merely file a complaint in state court pleading “class

action” claims and thereby circumvent the process of a

quick and economical individual arbitration on the merits

of any dispute — the remedy which the parties had origi-

nally bargained to receive. To permit any state or “federal

court to read a classwide arbitration term into the parties’

agreement would ‘disrupt the negotiated risk/benefit

allocation and direct the parties to proceed with a differ-

ent sort of arbitration.’ ” (Opn. at App. 21; citing Champ,

95 F.3d at 274-77 (internal brackets omitted).)

The majority of circuits and other states applying the

FAA have rejected California’s judicially-imposed pro-

cedures. This wholesale judicial intervention makes the

role of the arbitrator, to whom the parties have conferred

jurisdiction to hear and decide their dispute, a mere

appendage of the litigation process. That outcome is

inconsistent with the FAA, and this Court’s precedents.

This Court should resolve the questions left unanswered

by Keating.

The petition for a writ of certiorari should be

granted.

Respectfully submitted,

Harry W.R. CHAMBERLAIN II

(Counsel of Record)

GorDON E. BossERMAN

TERRENCE M. KING

GINSBURG, STEPHAN, ORINGHER

& RICHMAN

A Professional Corporation

10100 Santa Monica Boulevard,

8th Floor

Los Angeles, California 90067-4012

(310) 557-2009

Attorneys for Petitioners

Blue Cross of California, CaliforniaCare Health Plans,

WellPoint Health Networks Inc., A California Corporation

April 1999

App. 1

APPENDIX A

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF

THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

BLUE CROSS OF CALIFORNIA ) No. B122446

ot es (Super. Ct. No.

Petitioners, ) BC179834)

me ) (Filed

THE SUPERIOR COURT OF Oct. 06, 1998)

LOS ANGELES COUNTY, )

Respondent; 7

ELIZABETH FARQUHAR et al., )

Real Parties in Interest. )

)

ORIGINAL PROCEEDING. Petition for writ of man-

date. Bruce E. Mitchell, Temporary Judge. (Pursuant to

Cal. Const., art. VI, § 21.) Petition denied.

Ginsburg, Stephan, Oringher & Richman and Gordon

E. Bosserman, Terrence M. King, and Gerald J. Miller for

Petitioners.

Ivie, McNeill & Wyatt, Inc., Barry Reed and Jay R.

Taylor for Real Parties in Interest.

App. 2

I. INTRODUCTION

This original writ proceeding presents a question of

first impression: whether a California court can, as autho-

rized by state law, order classwide arbitration in a case

that falls under the Federal Arbitration Act (the act). (9

U.S.C.A. § 1 et seq.) Stated differently, the issue is

whether the act preempts California decisional authority

authorizing classwide arbitration. The United States

Supreme Court has never reached the question whether

the act precludes classwide arbitration under state law.

We conclude application of the California classwide arbi-

tration rule is not preempted by the act. Accordingly, we

deny the writ petition.

Il. BACKGROUND

Two named plaintiffs, Elizabeth Farquhar, and Laurie

Winett, brought this class action, against Blue Cross of

California and Wellpoint Health Networks, Inc. (collec-

tively, Blue Cross). They alleged Blue Cross had “engaged

in a widespread practice of selling and administering

health plans which violate laws concerning pre-existing

condition exclusions, waiting period exclusions, waivered

condition exclusions, and temporary exclusions.” Blue

Cross answered the complaint alleging, in part, that

plaintiffs were required by contract to resolve their claims

through binding arbitration.

The arbitration provision in Blue Cross’s “Personal

Prudent Buyer Classic and Basic Hospital Plan for Fami-

lies and Individuals” stated: “Any dispute between you

and Blue Cross of California and/or its affiliates must be

resolved by binding arbitration, if the amount in dispute

‘¢

Be:

Bal

OB AER

“*

App. 3

exceeds the jurisdictional limit of the Small Claims Court.

Any such dispute will be resolved not by law or resort to

court process, except as California law provides for judi-

cial review of arbitration proceedings. Under this cover-

age, both you and Blue Cross of California and its

affiliates are giving up the right to have any dispute

decided in a court of law before a jury.” A more extensive

arbitration clause was included in Blue Cross’s “Prudent

Buyer Plan Service Agreement and Combined Evidence

of Coverage and Disclosure Form.” It stated: “PART VII

BINDING ARBITRATION []] A. Any dispute or claim, of

whatever nature, arising out of, in connection with, or in

relation to this Agreement or breach thereof, or in rela-

tion to care or delivery of care, including any claim based

on contract, tort or statute, must be resolved by arbitra-

tion if the amount sought exceeds the jurisdictional limit

of the small claims court [{] B. Any disputes regarding a

claim for damages within the jurisdictional limits of the

small claims court will be resolved in such court. [J] C.

The arbitration is begun by the Member making written

demand on Blue Cross. The arbitration will be conducted

by the American Arbitration Association according to its

commercial rules of arbitration. The arbitration shall be

held in the state of California. [{] D. The Member and

Blue Cross agree to be bound by the arbitration provision

and acknowledge that they are giving up their right to a

trial by court or jury. [{] E. The arbitration findings will

be final and binding except to the extent that California

or Federal law provide for the judicial review of arbitra-

tion proceeding.”

Blue Cross filed a petition in the trial court to compel

arbitration of the individual plaintiffs’ claims and to stay

App. 4

the litigation. It argued in part that the act preempted

California law as to classwide arbitration. Plaintiffs

opposed the petition. They did not dispute that their

arbitration agreements were contained in contracts evi-

dencing a transaction involving commerce and therefore

within the purview of the act. They argued, however, that

California’s procedural law concerning the conduct of

arbitration was not preempted by the act. The respondent

court granted Blue Cross’s petition to compel arbitration

and to stay judicial proceedings as to the individual plain-

tiffs, but denied its motion to stay the litigation as a

whole. The trial court ordered in part: “The Motion to

Stay Judicial Proceedings is denied as to the class claims

alleged in the Complaint. Discovery shall continue as to

the class claims for purposes of a possible class certifica-

tion motion and, . . . if a class is certified, the class claims

will be referred to class-wide arbitration. ...” The trial

court also concluded that “[t]he arbitration provision in

issue is one of adhesion, drafted by [Blue Cross].”

Blue Cross then filed the present petition for a writ of

mandate, prohibition or other appropriate relief. Blue

Cross contends the act preempts California law allowing

for classwide arbitration, therefore the respondent court

erred in denying the motion to stay the judicial action as

a whole. We issued an order to show cause why the relief

prayed for in the petition should not be granted. Blue

Cross has not raised any issue in its petition specifically

concerning the respondent court’s limited discovery

order or its finding the arbitration provision was one of

adhesion. We do not address those issues because they

have not been raised. The sole question before us is

i ines SO CSB

é2

App. 5

whether the act prohibits classwide arbitration in this

case.

III. DISCUSSION

A. Ripeness

The parties have not raised any question as to this

writ proceeding being premature and we do not conclude

that it is. Blue Cross’s position is that binding arbitration

of individual claims was mandated by contract and the

act precludes arbitration of class claims under state law;

therefore the respondent court should have stayed the

entire litigation. Plaintiffs do not claim they are entitled to

litigate the class claims in a court action. They assert only

that they may arbitrate those claims. To allow discovery

to proceed as to the existence of a class if classwide

arbitration is not allowed would waste judicial resources

and burden the parties with unnecessary expense of time

and money. In addition, to defer a decision on this issue

would result in “lingering uncertainty in the law.” (Pacific

Legal Foundation v. California Coastal Com. (1982) 33 Cal.3d

158, 170.) Therefore, whether the trial court erred in

refusing to stay the litigation is an issue that is ripe for

resolution. This case does not present an “abstract differ-

ence[ ] of legal opinion” for resolution, nor will it result

in our issuing a “purely advisory opinion| ].” (Pacific

Legal Foundation v. California Coastal Com., supra, 33 Cal.3d

at p. 170; accord Santa Clara County Local Transportation

Authority v. Guardino (1995) 11 Cal.4th 220, 230.) The

present case involves concrete issues — may discovery

proceed on whether there should be class certification

App. 6

with the potential that plaintiffs will later be joined in

classwide arbitration.

B. The Federal Arbitration Act

The parties agree that the underlying health insur-

ance contracts evidence transactions involving commerce

and therefore the arbitration provisions fall within the

purview of the act. The act was enacted in 1925 (43 Stat.

883) and codified in 1947. (61 Stat. 669.) It provides in

section 2 that a written arbitration provision in a contract

“evidencing a transaction involving commerce .. . 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.A. § 2; italics added.) Section 4 of the act provides

for a petition to compel arbitration in “any United States

district court” and for the issuance of an order “directing

the parties to proceed to arbitration in accordance with the

terms of the agreement.” (9 U.S.C.A. § 4; italics added.)

The purpose of the act “was to reverse the longstand-

ing judicial hostility to arbitration agreements that had

existed at English common law and had been adopted by

American courts.” (Domke on Commercial Arbitration

(Rev. ed. 1997) Chapter 4: Statutory Arbitration Law,

§ 4.04, p. 6, fn. omitted; Allied-Bruce Terminix Cos. v.

Dobson (1995) 513 U.S. 265, 270-271; see Kulukundis Ship-

ping Co. v. Amtorg Trading Corp. (2d Cir. 1942) 126 F.2d

978, 982-985 [tracing the history of the judicial attitude

towards arbitration that led to the enactment of the act];

H.R.Rep. No. 96, 68th Cong., 1st Sess., p. 1 (1924);

Sen.Rep. No. 536, 68th Cong., Ist Sess., p. 2 (1924).) A

1924 Senate Report described the “old law”: “But it is

ii ls ae le oe

2 iit ON RED BRA oh ae ceeds aes

App. 7

very old law that the performance of a written agreement

to arbitrate would not be enforced to equity, and that if

an action at law were brought on the contract containing

the agreement to arbitrate, such agreement could not be

pleaded in bar of the action; nor would such an agree-

ment be ground for a stay of the proceedings until arbi-

tration was had. Further, the agreement was subject to

revocation by either of the parties at any time before the

award. With this as the state of the law, such agreements

were in large part ineffectual, and the party aggrieved by

the refusal of the other party to carry out the arbitration

agreement was without adequate remedy [{]. Until

recently in England, and up to the present time in nearly,

if not quite all, the States of the Union, such has been the

law in regard to arbitration agreements. The Federal

courts have in the main been governed by the same rules

and, as a consequence, have denied relief to the parties

seeking to compel the performance of executory agree-

ments to settle and determine disputes by arbitration.”

(Sen.Rep. No. 536, 68th Cong., Ist Sess., p. 2 (1924).) A

1924 House Report explained the effect of the legislation

as follows: “Arbitration agreements are purely matters of

contract, and the effect of the bill is simply to make the

contracting party live up to his agreement. He can no

longer refuse to perform his contract when it becomes

disadvantageous to him. an arbitration agreement is

placed upon the same footing as other contracts, where it

belongs.” (H.R.Rep. No. 96, 68th Cong., Ist Sess., p. 1

(1924).)!

' Two identical bills made their way through the 68th

Congress, Senate Bill No. 1005 and House Bill No. 646. During

Nee

App. 8

The United States Supreme Court has described the

Congressional purpose in adopting the act as follows:

“American courts initially followed English practice,

perhaps just “ ‘stand[ing] . . . upon the antiquity of the

”” prohibiting arbitration clause enforcement, rather

than “ ‘upon its excellence or reason.’” [Citation.]

Regardless, when Congress passed the Arbitration Act in

1925, it was ‘motivated, first and foremost, by a...

desire’ to change this antiarbitration rule. [Citation.] It

rule

Congressional debate, Senator Thomas J. Walsh of Montana, a

member of the Senate Committee on the Judiciary, stated that

“the bill [Senate Bill No. 1005] provides for the abolition of the

rule that agreements for arbitration will not be specifically

enforced.” (Remarks of Senator Walsh, 66 Cong. Rec. 984

(1924).) Congressman George S. Graham of Pennsylvania, the

Chairman of the House Committee on the Judiciary, elaborated

on the purpose of the legislation: “This bill [House Bill No. 646]

simply provides for one thing, and that is to give an opportunity

to enforce an agreement in commercial contracts and admiralty

contracts — an agreement to arbitrate, when voluntarily placed

in the document by the parties to it. It does not involve any new

principle of law except to provide a simple method by which the

parties may be brought before the court in order to give

enforcement to that which they have already agreed to. It does

not affect any contract that has not the agreement in it to

arbitrate, and only gives the opportunity . . . of asking the

parties to come in and carry through, in good faith, what they

have agreed to do. It does nothing more than that. It creates no

new legislation, grants no new rights, except a remedy to

enforce an agreement in commercial contracts and in admiralty

contracts.” (Remarks of Congressman Graham, 65 Cong. Rec.

1931 (1924).) As similarly stated by Congressman Graham on

another occasion, “The result of [House Bill No. 646] is that if

you and I agree in the contract to arbitrate we must arbitrate

and can not shirk it afterwards.” (Remarks of Congressman

Graham, 66 Cong. Rec. 3004 (1925).)

App. 9

intended courts to ‘enforce [arbitration] agreements into

which parties had entered,’ [citation; footnote omitted],

and to ‘place such agreements “upon the same footing as

other contracts.’ ” [Citation.]” (Allied-Bruce Terminix Cos.

v. Dobson, supra, 513 U.S. at pp. 270-271.) In Perry v.

Thomas (1987) 482 U.S. 483, 490, the United States

Supreme Court held: “” ‘[T]he preeminent concern of Con-

gress in passing the Act was to enforce private agree-

ments into which parties had entered... . ’ [Citation.]”

The high court has similarly explained that the “’pri-

mary’” of the act was to ensure ‘ “that private agreements

to arbitrate are enforced according to their terms.” ’ (Mas-

trobuono v. Shearson Lehman Hutton, Inc. (1995) 514 U.S. 52,

57.)

C. The Act’s Preemption of State Law

The act is predicated on Congress's authority to enact

substantive rules under the Commerce laws. (Allied-Bruce

Terminix Cos. v. Dobson, supra, 513 U.S. at p. 271; Perry v.

Thomas, supra, 482 U.S. at p. 489; Southland Corp. v. Keating

(1984) 465 U.S. 1, 11.) The act “ ‘creates a body of federal

substantive law’ ” requiring that arbitration agreements

be honored. (Southland Corp. v. Keating, supra, 465 U.S. at

pp. 12 & 15, fn. 9; accord, Mitsubishi Motors v. Soler

Chrysler-Plymouth (1985) 473 U.S. 614, 626.) That federal

substantive law is applicable in both state and federal

courts. (Allied-Bruce Terminix Cos. v. Dobson, supra, 513

U.S. at pp. 271-272; Perry v. Thomas, supra, 482 U.S. at p.

489; Southland Corp. v. Keating, supra, 465 U.S. at p. 12.)

However, the scope of federal preemption under the

act is not complete. The United States Supreme Court has

App. 10

held: “The [act] contains no express pre-emptive provi-

sion, nor does it reflect a congressional intent to occupy

the entire field of arbitration. [Citation.]” (Volt Info. Sci-

ences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 477.)

Rather, state law is preempted to the extent it stands as

an obstacle to contractual arbitration. As the United

States Supreme Court explained in Volt: “[E]ven when

Congress has not completely displaced state regulation in

an area, state law may nonetheless be pre-empted to the

extent that it actually conflicts with federal law -— that is,

to the extent that it ‘stands as an obstacle to the accom-

plishment and execution of the full purposes and objec-

tives of Congress.’ [Citation.]” (Volt Info. Sciences v. Leland

Stanford Jr. U., supra, 489 U.S. at p. 477.) With respect to

section 2 of the act, the court has explained: “In enacting

§ 2 of the federal Act, Congress declared a national policy

favoring arbitration and withdrew the power of the states to

require a judicial forum for the resolution of claims which the

contracting parties agreed to resolve by arbitration.” (South-

land Corp. v. Keating, supra, 465 U.S. at p. 10, italics added;

accord, Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S.

681, 684-685.) As stated in Perry v. Thomas, supra, 482 U.S.

at page 489: “Section 2 is a congressional declaration of a

liberal federal policy favoring arbitration agreements,

notwithstanding any state substantive or procedural poli-

cies to the contrary.”

The United States Supreme Court has further delin-

eated the preemptive scope of the act in a series of

decisions. As noted above, section 2 of the act places

arbitration agreements on an equal footing with contracts

generally. (Allied-Bruce Terminix Cos. v. Dobson, supra, 513

U.S. at pp. 270-271; Doctor’s Associates, Inc. v. Casarotto,

App. 11

supra, 517 U.S. at pp. 684-685.) In view of that purpose,

the Supreme Court has held: “Thus, generally applicable

contract defenses, such as fraud, duress or uncons-

cionability, may be applied to invalidate arbitration

agreements without contravening § 2. [Citations.]” (Doc-

tor’s Associates, Inc. v. Casarotto, supra, 517 U.S. at p. 687.)

However, a state law that invalidates the express terms of

an arbitration agreement is preempted by the act. For

example, the Supreme Court has held, “[I]f contracting

parties agree to include claims for punitive damages

within the issues to be arbitrated, the [act] ensures that

their agreement will be enforced according to its terms

even if a rule of state law would otherwise exclude such

claims from arbitration.” (Mastrobuono v. Shearson Lehman

Hutton, Inc., supra, 514 U.S. at p. 58, orig. italics.) Further,

a court may not invalidate an arbitration agreement

under a state law that conditions enforceability of the

agreement on compliance with special rules not applica-

ble to contracts generally. (Doctor’s Associates, Inc. v.

Casarotto, supra, 517 U.S. at p. 687.) Any such rule is

preempted by the act. (Ibid.) Also, a state law requiring

judicial consideration of a claim contrary to the parties’

agreement to arbitrate that claim directly conflicts with

the act and violates the Supremacy Clause. (Perry v.

hhomas, supra, 482 U.S. at p. 491 [the act preempted

California statute providing that court actions for collec-

tion of wages may be maintained without regard to the

existence of any private agreement to arbitrate]; Southland

Corp. v. Keating, supra, 465 U.S. at p. 16 [the act preempted

California statute requiring judicial consideration of fran-

chise investment law claims even though the parties had

agreed to arbitrate the claim].) In short, the act preempts

App. 12

state anitarbitration law so as to prevent state and federal

courts from reaching different results about the validity

and enforceability of arbitration agreements in similar

cases. (Allied-Bruce Terminix Cos. v. Dobson, supra, 513 U.S.

at pp. 271-272.)

D. California Decisional Authority Authorizes

Classwide Arbitration

Under California decisional authority, classwide arbi-

tration is permissible. (Keating v. Superior Court (1982) 31

Cal.3d 584, 608-614, revd. other grounds in Southland

Corp. v. Keating, supra, 465 U.S. at p. 16; Izzi v. Mesquite

Country Club (1986) 186 Cal.App.3d 1309, 1318-1322.)? In

Keating v. Superior Court, supra, 31 Cal.3d at pages

608-614, the California Supreme Court considered

whether a trial court could order classwide arbitration

under the adhesive but enforceable franchise contracts.

The court first noted the “importance of the class action

device for vindicating rights asserted by large groups of

persons.” (Id. at p. 609.) The court then reasoned: “If the

right to classwide proceedings could be automatically

eliminated in relationships governed by adhesion con-

tracts through the inclusion of a provision for arbitration,

the potential for undercutting these class action princi-

ples, and for chilling the effective protection of interests

common to a group, would be substantial.” (Ibid.) The

2 We adopt the term “classwide” arbitration as used by the

California Supreme Court in Keating, rather than the equally

descriptive phrases “Class arbitration” or “Class action

arbitration.”

App. 13

Supreme Court rejected the option of requiring each indi-

vidual franchisee to arbitrate its claims as “resulting in

needless duplication and the potential for inconsistent

awards.” (Ibid.) The Supreme Court identified a different

problem which justified the use of classwide arbitration

as follows: “It is common knowledge that arbitration

clauses frequently appear in standardized contracts of

adhesion. A primary consideration which has led courts

to uphold such clauses, despite the adhesive nature of the

contract, is the belief that arbitration is not oppressive

and does not defeat the reasonable expectations of the

parties. (Madden v. Kaiser Foundation Hospitals [(1976)] 17

Cal.3d 699, 710, 712.) If, however, an arbitration clause

may be used to insulate the drafter of an adhesive con-

tract from any form of class proceeding, effectively fore-

closing many individual claims, it may well be oppressive

and may defeat the expectations of the nondrafting party.

[{] One possible solution to this dilemma would be to

hold that arbitration agreements contained in contracts of

adhesion may not operate to Stay properly maintainable

class actions. [Citations.]” (Id. at p. 610.)

The California Supreme Court then turned to the

question whether consolidation of the arbitration pro-

ceedings should be allowed. The court cited federal

authority for consolidation of arbitration proceedings by

reliance on rule 42(a) of the Federal Rules of Civil Pro-

cedure (FRCP). It concluded that by analogy, FRCP rule

(28 U.S.C.), the class action provision, would provide a

basis for ordering classwide arbitrations in federal court.3

* Notably, the cases cited in Keating that relied on the FRCP

in ordering consolidated arbitration were later disapproved or

App. 14

The California Supreme Court further noted that other

state courts had allowed consolidation of arbitration pro-

ceedings even in the absence of statutory authority. Fur-

ther, in California, consolidated arbitration was

authorized by section 1281.3 of the Code of Civil Pro-

cedure. The court observed that Code of Civil Procedure

section 1281.3 authorized consolidated arbitration even

when the arbitration agreements involved provide for

different procedures or methods of selecting arbitrators;

the statute provides for court resolution of any such

conflicts. (Id. at p. 612; see Code Civ. Proc., § 1281.3, subd.

(3).) In Keating, the Supreme Court described the poten-

tial situation confronting parties in consolidated arbitra-

tions as follows: “Each contract may provide a different

procedure for arbitration, or a different method of select-

ing the arbitrator. Federal courts have held that a court

‘can mold the method of selection and the number of

arbitrators to implement the consolidated proceedings.’

(Matter of Czarnikow-Rionda Co. Inc. [(S.D.N.Y. 1981). 512

F.Supp. 1308], 1309.) Similarly, Code of Civil Procedure

section 1281.3 provides that consolidated arbitration pro-

ceedings may be ordered inter alia, where ‘one party is a

party to a separate arbitration agreement or proceeding

with a third party,’ and that if the agreements do not

mesh in their description of procedure, a court has

authority to appoint an arbitrator, and to ‘resolve [con-

flicts among the agreements’ and determine the rights

and duties of the various parties to achieve substantial

justice under all the circumstances.’ Thus, a party may be

called into doubt in Government of United Kingdom v. Boeing Co.

(2d Cir. 1993) 998 F.2d 68, 71, 74.)

App. 15

forced into a coordinated arbitration proceeding in a dis-

pute with a party with whom he has no agreement, before

an arbitrator he had no voice in selecting and by a pro-

cedure he did not agree to.” (Id. at p. 612.) The Keating

court then contrasted the situation in a classwide arbitra-

tion as follows: “In these respects, an order for classwide

arbitration in an adhesion context would call for consid-

erably less intrusion upon the contractual aspects of the

relationship. The members of a class subject to classwide

arbitration would all be parties to an agreement with the

party against whom their claims is asserted; each of those

agreements would contain substantially the same arbitra-

tion provision; and if any of the members of the class

were dissatisfied with the class representative, or with

the choice of arbitrator, or for any other reason would

prefer to arbitrate on their own, they would be free to opt

out and do so. Moreover, the interests of justice that

would be served by ordering classwide arbitration are

likely to be even more substantial in some cases than the

interests that are thought to justify consolidation.” (Ibid.)

The California Supreme Court concluded that “a

court is not without authority” to order classwide arbitra-

tion. (Keating v. Superior Court, supra, 31 Cal.3d at p. 613.)

It held that a trial court may, in its discretion, and upon

consideration of specified factors, order arbitration on:a

classwide basis. (Keating v. Superior Court, supra, 31 Cal.3d

at p. 613.) The California Supreme Court explained the

factors to be considered as follows: “Classwide arbitra-

tion . . . must be evaluated, not in relation to some ideal

but in relation to its alternatives. If the alternative in a

case of this sort is to force hundreds of individual fran-

chisees each to litigate its cause with Southland in a

a ee

App. 16

separate arbitral forum, then the prospect of classwide

arbitration, for all its difficulties, may offer a better, more

efficient, and fairer solution. Where that is so, and gross

unfairness would result from the denial of opportunity to

proceed on a classwide basis, then an order structuring

arbitration on that basis would be justified. [{] Whether

ich an order would be justified in a case of this sort is a

n appropriately left to the discretion of the trial

n making that determination, the trial court would

called upon to consider, not only the factors normally

relevant to class certification, but the special characteris-

tics of arbitration as well, including the impact upon an

arbitration proceeding of whatever court supervision

might be required, and the availability of consolidation as

an alternative means of assuring fairness.” (Keating v.

Superior Court, supra, 31 Cal.3d at p. 613.) The court

recognized that classwide arbitration would require a

greater degree of judicial involvement than is normally

associated with arbitration. Evaluated in relation to the

alternatives, however, the Supreme Court concluded that

“classwide arbitration, for all its difficulties, may offer a

better, more efficient, and fairer solution.” (Ibid.)

The California Supreme Court remanded Keating to

the trial court for a determination “as to whether the

interests of justice require that the order to arbitrate be

conditioned upon Southland’s acceptance of classwide

arbitration.” (Id. at p. 591.) The California Supreme Court

held: “Whether classwide proceedings would prejudice

the legitimate interests of the party which drafted the

adhesion agreement must also be considered, and that

party should be given the option of remaining in court

rather than submitting to classwide arbitration.” (Id. at

App. 17

pp. 613-614.) No issue has been raised in this extraordin-

ary writ proceeding with respect to that aspect of the

Keating decision.*

Although Keating involved arbitration agreements

within the purview of the act, the defendant did not

contend, nor did the California Supreme Court decide,

whether classwide arbitration was preempted by federal

law. (See Southland Corp. v. Keating, supra, 465 U.S. at pp.

8-9.) Upon review of Keating, the United States Supreme

Court noted that the question whether classwide arbitra-

tion was contrary to the act was neither raised nor

decided in the California Supreme Court. Hence, the

United States Supreme Court held, it was without juris-

diction to resolve the question as a matter of federal law.

(Id. at p. 9.)

Following the United States Supreme Court's deci-

sion in Keating, the California Court of Appeals applied

this state’s Supreme Court's decision in Keating in a case

within the ambit of the act. In Lewis v. Prudential-Bache

Securities, Inc. (1986) 179 Cal.App.3d 935, 938, 945-946,

relying on Keating v. Superior Court, supra, 31 Cal.3d at

page 613, the Court of Appeal reversed an order denying

* The respondent court has not yet certified the class or

even finally determined plaintiff’s claims may proceed on a

classwide basis. Any discussion on our part as to whether

plaintiffs’ claims should actually proceed on a classwide basis

would be premature. The only issue before us is whether the

respondent court could order discovery on the class

certification issue. Blue Cross contends the act preempts any

possibility of classwide certification and possible arbitration of

plaintiffs’ claims in such a forum.

App. 18

a petition to compel arbitration of a class action com-

plaint where the arbitration agreements fell under the act.

The court noted that the United States Supreme Court

had remanded Keating without deciding whether the act

precluded classwide arbitration. It did not otherwise dis-

cuss the federal preemption question.°

5 The Pennsylvania Superior Court agreed with Keating in

Dickler v. Shearson Lehman Hutton (1991) 596 A.2d 860, 861-863

(appeal den. (1992) 616 A.2d 984). The arbitration provisions at

issue in Dickler were contained in securities industry client

agreements and therefore fell under the act. They contained no

express provision whether class arbitration was intended or

considered. The Pennsylvania court noted the United States

Supreme Court had not ruled on the propriety of classwide

arbitration in Southland Corp. v. Keating, supra, 465 U.S. at pages

8-9. (Dickler v. Shearson Lehman v. Hutton, supra, 596 A.2d at pp.

862-863.) The Pennsylvania court held: “Given the three paths

down which this litigation can be directed —- compelled

individual arbitration, class action in a court of law, or

compelled classwide arbitration — the last choice best serves the

dual interest of respecting and advancing contractually agreed

upon arbitration agreements while allowing individuals who

believe they have been wronged to have an economically

feasible route to get injunctive relief from large institutions

employing adhesion contracts. [{] The availability of class suits

in arbitration proceedings precludes either party from forcing

the other to litigate in a position less advantageous than that for

which they contracted. Allowing the suit to proceed through the

court would defeat the purpose of the arbitration agreement,

allowing plaintiffs to escape obligated arbitration in order to be

heard in the sympathetic province of a jury trial. Future litigants

might feel encouraged to join classes together for this single

purpose when they otherwise would have been satisfied with

individually litigating their claim. [{] Compelling individual

arbitration would force individuals already straitjacket[ed] by

an industry-wide practice of arbitration agreements to fight

alleged improprieties at an exorbitant economic cost. Individual

son ret

App. 19

Also subsequent to our Supreme Court’s decision in

Keating, the Court of Appeal in Garden Grove Community

Church v. Pittsburgh-Des Moines Steel Co. (1983) (140

Cal.App.3d 251, 262, considered whether Code of Civil

Procedure section 1281.3, authorizing consolidated arbi-

tration, was preempted by the act. The court held it was

not. (Ibid.) it stated simply: “We see no conflict between

the means the Legislature has chosen to effect this policy

[favoring consolidating arbitrations] - giving the trial

court discretion to order consolidated arbitration — and

the federal scheme of regulation embodied in the [act].”

(Ibid.)

E. Lower Federal Court Decisions

In construing and applying the act, we are bound to

follow opinions of the United States Supreme Court. (U.S.

Const., art. VI, cl. 2; Rohr Aircraft Corp. v. County of San

Diego (1959) 51 Cal.2d 759, 764-785, revd. on other grds.

(1960) 362 U.S. 628, 636 [federal Reconstruction Finance

Corporation Act]; Stock v. Plunkett (1919) 181 Cal. 193,

arbitration would be small deterrent to companies certain that

few proceedings will be instituted against them. Because the

principles of res judicata and collateral estoppel are not

applicable to arbitration proceedings, each plaintiff would be

forced to fully litigate his complaint. [¥] . . . Fairness

mandates . . . that the Dickler Group, bound by adhesion form

contracts to arbitration agreements, be able to protect their

interests by proceeding as a class through arbitration.” (Id. at p-

867, orig. italics.)

App. 20

194-195 [federal statute with reference to location of min-

ing claims]; Garcia v. Superior Court (1996) 42 Cal.App.4th

177, 180 [federal Civil Rights Act]; Gervase v. Superior

Court (1995) 31 Cal.App.4th 1218, 1228-1229 [federal

Racketeer Influenced and Corrupt Organizations Act

(RICO)]; Elliott v. Albright (1989) 209 Cal.App.3d 1028,

1034 [the act].) As noted above, however, the United

States Supreme Court has never reached the question

whether the act precludes classwide arbitration under

state law. Further, we are not bound by lower federal

court decisions construing the act. (Ibid.)

Blue Cross argues we should adopt a United States

Court of Appeals decision which barred class-wide arbi-

tration in the federal district courts absent an express

agreement to arbitrate class claims. The United States

Court of Appeals for the Seventh Circuit has held “that

absent a provision in the parties’ arbitration agreement

providing for class treatment of disputes, a [United States]

district court has no authority [under federal law] to certify

classwide arbitration.” (Champ v. Siegel Trading Co., Inc.

(7th Cir. 1995) 55 F.3d 269, 271; accord, Randolph v. Green

Tree Financial Corp. (M.D. Ala. 1997) 991 F.Supp. 1410,

1423-1424; Howard v. Klynveld Peat Marwick Goerdeler

(S.D.N.Y. 1997) 977 F.Supp. 654, 665, fn. 7; Gammaro v.

Thorp Consumer Discount Co. (D.Minn. 1993) 828 F.Supp.

673, 674.) The Champ court reasoned as follows: under

section 4 of the act, a federal district court is required to

enforce arbitration agreements “ ‘in accordance with the

terms of the agreement.’ 8 U.S.C. § 4”; there was nothing

in the written arbitration agreements expressly providing

for classwide arbitration, the act is silent on the issue of

classwide arbitration; several other circuit courts had

App. 21

held that absent an express provision in the parties arbi-

tration agreement, section 4 of the act barred a district

court judge or magistrate from applying the FRCP to

consolidate abitrations; and “[f]or a federal court to read [a

classwide arbitration] term into the parties’ agreement

would ‘disrupt[] the negotiated risk/benefit allocation

and direct[ ] [the parties] to proceed with a different sort

of arbitration.’ ” (Champ v. Siegel Trading Co., Inc., supra,

95 F.3d at pp. 274-277.) The Champ decision adopted the

reasoning of other circuit Courts of Appeal with respect

to consolidation of arbitrations - that absent an agree-

ment to the contrary, section 4 of the act precludes a

federal district judge or magistrate from ordering consol-

idation in the arbitration setting. (Government of United

Kingdom v. Boeing Co. (2d Cir. 1993) 998 F.2d 68, 74; Del E.

Webb Const. v. Richardson Hosp. Authority (5th Cir. 1987)

823 F.2d 145, 150; American Centennial Ins. v. National Cas.

Co. (6th Cir. 1991) 951 F.2d 107, 108; Baesler v. Continental

Grain Co. (8th Cir. 1990) 900 F.2d 1193, 1195; Weyerhaeuser

Co. v. Western Seas Shipping Co. (9th Cir. 1984) 743 F.2d

635, 637; Protective Life Ins. Corp. v. Lincoln Nat. Life Ins.

(11th Cir. 1989) 873 F.2d 281, 282; see Consolidation by

Federal Court of Arbitration Proceedings Brought Under

Federal Arbitration Act (9 U.S.C.S. § 4) (1991) 104

A.L.R.Fed. 251.)

In Champ it was argued that federal class action rules

applied to an arbitration subject to the act. FRCP rule 23

authorized class actions. FRCP rule 81(a)(3) provided that

the civil rules applied to proceeding under the act “only

to the extent that matters of procedure are not provided

for in those statutes.” Hence, it was contended that

App. 22

classwide arbitration could be ordered. The Seventh Cir-

cuit panel rejected that argument as follows: “First of all,

Rule 81(a)(3) says that the Federal Rules fill in only those

procedural gaps left open by the [act.] But as explained

above, section 4 of [the act] requires that we enforce an

arbitration agreement according to its terms. Such terms

conceivably could consist of consolidated or even class

arbitration. The parties here did not include in their

agreement an express term providing for class arbitra-

tion. Thus, one could say that through the proper applica-

tion of 9 U.S.C. § 4 the [act] has already provided the type

of procedure to be followed in this case, namely, non-

class-action arbitration. [Citations.] [{] But more to the

point, we still could not accept the intervenors’ assertions

because by its language Rule 81(a)(3) only applies to

Judicial proceedings under the [act.] [Citations.] . .

[N]othing in the language of Rule 81(a)(3) purports to

apply the Federal Rules of Procedure to the actual pro-

ceedings on the merits before the arbitrators, which are

normally regulated by the American Arbitration Associa-

tion’s Commercial Arbitration Rules. [Citation.] As the

Fourth Circuit has explained it: ‘[a]n arbitration hearing

is not a court of law. When contracting parties stipulate

that disputes will be submitted to arbitration, they relin-

quish the right to certain procedural niceties which are

normally associated with a formal trial.’ Burton v. Bush,

614 F.2d 389, 390 (4th Cir. 1980) (citations omitted); .. . ).

One of those ‘procedural niceties’ is the possibility of

pursuing a class action under Rule 23. Therefore, absent

an express provision in the parties’ arbitration agreement

providing for class arbitration, Rule 81(a)(2) does not

provide a district court with the authority to reform the

App. 23

parties’ agreement and order the arbitration panel to hear

these claims on a class basis pursuant to Rule 23.” (Champ

v. Siegel Trading Co. Inc., supra, 55 F.3d at pp. 276-277, fn.

omitted, orig. emphasis.)

In contrast to Champ, the Court of Appeals for the

First Circuit has held a district court does have the power

to order consolidated arbitration where the agreement is

silent as to consolidation, but state law specifically pro-

vides for such procedure. In New England Energy Inc. v.

Keystone Shipping Co. (1st Cir. 1988) 855 F.2d 1, 3, the

Court of Appeals for the First Circuit held there was “no

compulsion of law or policy barring a district court from

issuing [an order consolidating two arbitrations], at least

when the agreement between the parties is silent and the

pertinent state law specifically provides for such.” That

court reasoned: the act does not preempt all state law on

arbitration, “only laws the would override the parties’

choice to arbitrate rather than litigate in court, in direct

conflict with the Act’s primary purpose of ensuring the

enforcement of privately negotiated arbitration agree-

ments” (id. at p. 4); the particular state Statute at issue,

the Massachusetts arbitration consolidation provision,

did not directly conflict with the act which says nothing

about consolidation; and ordering consolidation, where

the parties’ contracts were silent on the subject, would

not conflict with section four of the act, requiring that

courts enforce arbitration agreements according to their

terms; and this was because such an order would be in

accordance with, rather than contradicting, the contrac-

tual terms. (Id. at p. 5). On the last point, the court stated

as follows: “Appellee’s argument... is not that the Act

directly contradicts the Massachusetts Statute, but that

App. 24

the state law is superseded in this case because the par-

ties’ contracts do not provide for consolidation, and an

order to consolidate would therefore conflict with the

requirement in section four of the federal Act that courts

enforce arbitration agreements according to their terms.

[{] We disagree that ordering consolidation pursuant to a

state statute when the contract is silent on the subject

improperly modifies the agreement struck by the parties

in violation of section four. We believe, as appellants

argue, that an order not contradicting the contractual

terms regarding arbitration is ‘in accordance with [those]

terms.’ ... Simply put, arbitration is still arbitration even

if it is consolidated arbitration.” (Ibid.)

The New England Energy case further reasoned that

the relevant United States Supreme Court decisions

directed the preemptive effect of the act at preventing the

diversion of cases from arbitration. The court stated;

“More particularly, nothing in the recent series of

Supreme Court decisions indicates that a state law whose

purpose is to promote the expedition resolution of cases

by means of the arbitral process is at odds with the policy

behind the Federal Arbitration Act. In each of the cases

emphasized by the appellee, the justices were faced with

competing laws that would have placed claims in the

courts instead of an arbitration. Two of those cases

involved state law. In Southland, the California Supreme

Court held that a state franchise investment statute

invalidated the parties’ agreement to arbitrate certain

claims. Similarly, in Perry, the California Supreme Court

had upheld a state labor law requirement that litigants be

provided a judicial forum for resolving wage disputes,

despite the existence of a private agreement to arbitrate

App. 25

such disputes. In holding the state laws to be preempted

in Southland and Perry, the Supreme Court observed that

‘[w]e see nothing in the Act indicating that the broad

principle of enforceability is subject to any additional

limitations under state law.’ [Citations.] [¥] The Massa-

chusetts arbitration consolidation provision, as appellants

seek to enforce it, does not in any way limit ‘the broad

principle of private agreements to arbitrate. There is no

attempt here to divert a case from arbitration to court.

Massachusetts seeks only to make more efficient the pro-

cess of arbitrating. Although the Supreme Court has held

that agreements to arbitrate must be enforced ‘even if the

result is “piecemeal” litigation,’ [citation], the Court also

has recognized the Act’s endorsement of ‘speedy and

efficient decisionmaking,’ [citation]. We fail to see why a

state should be prevented from enhancing the efficiency

of the arbitral process, so long as the state procedure does

not directly conflict with a contractual provision.” (New

England Energy Inc. v. Keystone Shipping Co., supra, 855

F.2d at pp. 6-7, orig. emphasis. )¢®

° Notably, Blue Cross conceded at oral argument that

consolidated arbitration as authorized by Code of Civil

Procedure section 1281.3 would be allowed in a case within the

purview of the act. (See Garden Grove Community Church v.

Pittsburgh-Des Moines Steel Co., supra, 140 Cal.App.3d at p. 262

[Code of Civil Procedure section 1281.3 not preempted by the

act].) It attempted to distinguish consolidated and classwide

arbitration on the grounds the Keating rule was nonstatutory,

while consolidation is authorized by statute in this state. We

conclude the purported distinction is one without a difference.

The federal preemption analysis is the same whether the state

rule is statutory regulatory, or judicially declared. (Securities

Industry Ass’n. v. Connolly (1st Cir. 1989) 883 F.2d 1114, 1120, fn.

4; Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142,

1161, fn. 16.)

RT senate setter --

App. 26

We decline to apply the Seventh Circuit decision in

Champs to this case. As discussed below, we conclude

section 4 of the act does not preclude application of the

California classwide arbitration rule. Further, we believe

the First Circuit New England Energy decision is both

analogous to our facts and better reasoned. We conclude

that when the arbitration agreement between the parties

is silent as to classwide arbitration and state law speci-

fically authorizes it in appropriate cases, an order com-

pelling classwide arbitration neither contradicts the

contractual terms nor contravenes the policy behind the

act.

F. Section 4 of the Act Does Not Preclude Applica-

tion of the California Classwide arbitration

Rule

As discussed above, the reasoning of the federal cir-

cuit court decisions on classwide and consolidated arbi-

trations turns on section 4 of the act. Significantly, the

United States Supreme Court has repeatedly indicated

that sections 3 and 4 of the act do not apply in state courts.

In Southland Corp. v. Keating, supra, 465 U.S. at page 16,

footnote 10, the court stated: “In holding that the Arbitra-

tion Act preempts a state law that withdraws the power

to enforce arbitration agreements, we do not hold that

§§ 3 and 4 of the Arbitration Act apply to proceedings in

state courts. Section 4, for example, provides that the

Federal Rules of Civil Procedure apply in proceedings to

compel arbitration. The Federal Rules do not apply in

such state court proceedings.” In Volt Info. Sciences v.

Leland Stanford Jr. U., supra, 489 U.S. at pages 476-477, the

United States Supreme Court described an argument that

App. 27

sections 3 and 4 of the act were not applicable in state

courts as “not without some merit,” but unnecessary to

reach in that case. Significantly, however, the Opinion

contains the following discussion: “While we have held

that the [act’s] ‘substantive’ Provisions — §§ 1 and 2 ~ are

applicable in state as well as federal court, [citation], we

have never held that 8§ 3 and 4, which by their terms

appear to apply only to proceedings in federal court, see

9 U.S.C. § 3 (referring to proceedings ‘brought in any of

the courts of the United States’): § 4 (referring to ‘any

United States district court’), are nonetheless applicable

in state court. See Southland Corp. v. Keating, supra, at 16,

n. 10 (expressly reserving the question whether ‘§§ 3 and

4 of the Arbitration Act apply to proceedings in state

courts’); see also id., at 29 [ ] (O’CONNOR, i dissenting)

(§§ 3 and 4 of the [act] apply only in federal court),” (Volt

Info. Sciences v. Leland Stanford Jr. U., Supra, 489 U.S. at p.

477, fn. 6.) Further, we have reviewed the legislative

history of the act and have not found anything therein

that would support a conclusion Congress intended sec-

tion 4 of the act to apply to the states.

Moreover, in Rosenthal v. Great Western Financial Secu-

rities Corp. (1996) 14 Cal.4th 394, 405-410, the California

Supreme Court held the federal provision for a jury trial

as to the existence of an arbitration agreement contained

in section 4 of the act did not operate in California

courts.” Our Supreme Court examined the language of

” Section 4 of the act provides in part: “If the making of the

arbitration agreement or the failure, neglect, or refusal to

perform the same be in issue, the court shall proceed summarily

to the trial thereof. . . . Where such issue is raised, the party

App. 28

section 4 of the act. It held section 4 of the act “does not

explicitly govern the procedures to be used in state

courts.” (Id. at p. 407.) Section 4 of the act “contemplates

a petition in ‘United States district court,’ and provides

that certain steps are to be taken ‘in the manner provided

by the Federal Rules of Civil Procedure.’” (Ibid.) The

Rosenthal court further considered principles of federal

preemption. It concluded that “a state procedural statute

or rule that frustrated the effectuation of section 2’s cen-

tral policy would, where the federal law applied, be

preempted by the [act,]” (id. at p. 408); however, a state

procedure that serves to further, rather than defeat, “full

and uniform effectuation of the federal law’s objectives”

- to ensure that arbitration agreements are enforced

according to their terms — is to be followed in California,

rather than section 4 of the act. (Id. at p. 410.) The Rose-

nthal court noted: “It is a ‘general and unassailable prop-

osition . . . that States may establish the rules of

procedure governing litigation in their own courts,’ even

when the controversy is governed[, as here,] by substan-

tive federal law. (Felder v. Casey (1988) 487 U.S. 131, 138[

|.) ‘By the same token, however, where state courts enter-

tain a federally created cause of action, the “federal right

cannot be defeated by the forms of local practice.” ’” (Id.

at p. 409.) More specifically the court stated: “Uniform

national application of a federal substantive law requires,

alleged to be in default may, except in cases of admiralty, on or

before the return day of the notice of application, demand a jury

trial of such issue, and upon such demand the court shall make

an order referring the issue or issues to a jury in the manner

provided by the Federal Rules of Civil Procedure, or may

specially call a jury for that purpose.”

App. 29

in particular, that state courts not apply procedural rules

that would ‘frequently and predictably produce different

outcomes... based solely on whether the [federal] claim

is asserted in state or federal court.” ([Felder v. Casey,

supra, 487 U.S. at p. 138].) (Id. at p. 409.) The California

Supreme Court concluded: “Like other federal procedural

rules, therefore, ‘the procedural provisions of and [act]

are not binding on state courts . . . provided applicable state

procedures do not defeat the rights granted by Congress.’

[Citation.]”; and “[blecause the California Procedure for

deciding motions to compel [arbitration] serves to fur-

ther, rather than defeat, full and uniform effectuation of

the federal law’s objectives, the California law, rather

than section 4 of the [act], is to be followed in California

courts.” (Id. at p. 410, orig. italics.)

The United States Supreme Court’s decision in Vol}

Info. Sciences v. Leland Stanford Jr. U., supra, 489 U.S. at

pages 470 and 476, indirectly supports our resolution of

the present case. At issue in Volt was California Code of

Civil Procedure section 1281.2, subdivision (c), which

allows a court to Stay arbitration pending resolution of

related litigation. The contract at issue in Volt contained a

choice-of-law provision which stated, “ ‘[T]he Contract

shall be governed by the law of the place where the

Project is located.’ ” (Id. at p. 470.) This state’s Court of

Appeal had interpreted the choice-of-law Provision as an

agreement to apply the state rules governing the conduct

of arbitration. The United States Supreme Court found no

basis for interfering with the state court’s interpretation.

[he court held “that application of the California statute

is not pre-empted by the [act] in a case where the parties

won a hed eae

App. 30

have agreed that their arbitration agreement will be gov-

erned by the law of California.” (Volt Info. Sciences v.

Leland Stanford Jr. U., supra, 489 U.S. at p. 470.) Of particu-

lar relevance to the present case, the court stated: “There

is no federal policy favoring arbitration under a certain

set of procedural rules; the federal policy is simply to

ensure the enforceability, according to their terms, of

private agreements to arbitrate” (Id. at p. 476.) Further,

the United States Supreme Court held: “[The act] itself

contains no provision designed to deal with the special

practical problems that arise in multiparty contractual

disputes when some or all of the contracts at issue

include agreements to arbitrate. California has taken the

lead in fashioning a legislative response to this problem,

by giving courts authority to consolidate or stay arbitra-

tion proceedings in these situations in order to minimize

the potential for contradictory judgments. [Citation.]” (Id.

at p. 476, fn. 5.) We find persuasive the United States

Supreme Court’s discussion in Volt of the preemptive

effect of the act as to state procedural rules.®

8 Plaintiffs have belatedly asserted, at oral argument and in

a letter brief, that a choice of law provision in the underlying

health insuring contracts constituted an express agreement to

apply California’s arbitration rules, therefore, under Volt, the

act has no preemptive effect. Blue Cross’s “Prudent Buyer Plan

Service Agreement and Combined Evidence of Coverage and

Disclosure Form” contained the following choice of law

provision: “PART V GENERAL PROVISIONS [{] . . . F.

Governing Law: .. . This Agreement shall be construed and

enforced in accordance with the laws of the State of California.”

The choice-of-law provision and its purported effect was not

raised in the trial court. (Nor was it raised in the return to the

present writ petition.) This court will not consider arguments

raised for the first time in a writ petition. (Cf., e.g., People v.

App. 31

We conclude that section 4 does not bar State courts

from ordering classwide arbitration. Therefore, it does

not operate to preclude classwide arbitration under Cali-

fornia decisional authority. Further, the California rule

allowing classwide arbitration, like the Statute at issue in

Rosenthal, can further rather than defeat the act’s goal of

enforcing agreement to arbitrate. Therefore, California’s

rule permitting classwide arbitration is not preempted by

section 4.

Rodrigues (1994) 8 Cal.4th 1060, 1119; People v. Garceau (1993) 6

Cal.4th 140, 173; People v. McPeters (1992) 2 Cal.4th 1148, 1174: In

re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1138: Pool v. City

of Oakland (1986) 42 Cal.3d 1051, 1065-1066; Estate of Leslie (1984)

37 Cal.3d 186, 202.) Even if the issue were properly before us, we

would not find it persuasive. Volt does not stand for the

Proposition a general choice-of-law Provision evidences in all

Cases an express intent to incorporate a state’s arbitration rules

into an arbitration agreement. (Mastrobuono v. Shearson Lehman

Hutton, Inc., supra, 514 US. at Pp. 58-64, & fn.4.) In Volt, the

United States Supreme Court accepted this state court’s

interpretation of the choice-of-law provision as meaning that

the parties had incorporated California arbitration rules into

their arbitration agreement. (Volt Info. Sciences, Inc. v. Leland

Stanford Jr. U., supra, 489 U.S. at pp. 474-476.) The high court's

decision in Volt therefore rested on the assumption the parties

had incorporated California rules of arbitration into thei:

arbitration agreement. (Id. at p. 476.) Volt held only that the act

does not prevent the enforcement of agreements to arbitrate

under state rules. (Id. at pp. 478-479.) There has been no finding

in the present case that the parties expressly agreed to

incorporate California’s arbitration rules into their agreements

Contrary to plaintiffs’ assertion, Volt does not compel this court

to conclude that by virtue of the choice-of-law provision in the

underlying health insuring agreements the parties agreed

California’s classwide arbitration rule would govern in this

Case.

App. 32

Blue Cross contends it is federal substantive law,

which this court is bound to follow, that no classwide

arbitration can be compelled unless the parties have

expressly agreed to such procedure. We disagree. First, as

discussed above, we conclude section 4 of the act does

not apply in state courts to bar in all cases classwide

arbitration. Second, even if it did apply, the United States

Supreme Court has never held that the language of sec-

tion 4 of the act providing for the issuance of a district

court order “directing the parties to proceed to arbitra-

tion in accordance with the terms of the agreement” (9 U.S.C.

§ 4, italics added), means that no classwide arbitration

can occur unless the parties have expressly so provided.

The legislative history of the act and the decisions of the

United States Supreme Court make clear that the act’s

preemptive scope is limited. Its purpose was to abolish

antiarbitration law and to make agreements to arbitrate

specifically enforceable. Consistent with that purpose, we

believe the language “in accordance with the terms of the

agreement” (9 U.S.C. § 4) means in accordance with the

agreement to arbitrate. Third, under federal law, as artic-

ulated in Champ and the cases on which the Seventh

Circuit relied, there is no authority for classwide arbitra-

tion. Under those circumstances, the Champ court refused

to read such authority into the parties’ arbitration agree-

ment. Here, on the other hand, state law authorizes

classwide arbitration. In the absence of an express agree-

ment not to proceed to arbitration on a classwide basis,

ordering the parties to arbitrate class claims as autho-

rized by state law does not conflict with their contractual

arrangement.

App. 33

Blue Cross also contends that an order compelling

classwide arbitration in this case would interfere with the

parties’ intentions; it asserts it bargained for individual

arbitration conducted according to the rules of the Ameri-

can Arbitration Association (AAA), not this “hybrid”

classwide arbitration requiring judicial intervention. This

argument is premature. The only issue before this court is

whether the Keating rule is preempted by the act. No

order has been entered certifying a class. No order has

been entered requiring classwide arbitration. (E.g. Gainey

v. Occidental Land Research (1986) 186 Cal.App.3d 1051,

1054-1055.) Whether classwide arbitration is appropriate

in this matter is a question left to the trial court’s discre-

tion upon consideration of a variety of factors. (Keating v.

Superior Court, supra, 31 Cal.3d at P. 613; Izzi v. Mesquite

Country Club, supra, 186 Cal.App.3d at pp. 1314, 1322.)

Moreover, under Keating, an arbitration agreement that is

silent as to classwide arbitration is amenable to such

procedure. Further, there has been no showing that an

order compelling classwide arbitration would conflict

with the agreement to proceed under AAA rules.

Classwide arbitration has been held allowable in cases

involving contracts to arbitrate under AAA rules,

although no issue was raised as to any conflict. (See Izzi v

Mesquite Country Club, supra, 186 Cal.App.3d at pp. 1314,

1322; Lewis v. Prudential-Bache Securities, Inc., supra, 179

Cal.App.3d at pp. 945-946; cf. Code Civ. Proc., § 1281.3;

Garden Grove Community Church ». Pittsburgh-Des Moines

Steel Co., supra, 140 Cal.App.3d at pp. 257, 266 [consol-

idating arbitrations where agreements provided for arbi-

tration under AAA rules]; Conejo Valley Unified School

Dist. v. William Blurock & Partners, Inc. (1980) 111

App. 34

Cal.App.3d 983, 989-993 [consolidated arbitration pur-

suant to section 1281.3 allowable despite conflict with

arbitrator selection provisions of AAA rules].) And even

if a conflict exists between the AAA rules and classwide

arbitration, the trial court may resolve the conflict. (Cf.

Code Civ. Proc., § 1281.3; see Keating v. Superior Court,

supra, 31 Cal.3d at pp. 612-613.) It is unlikely the AAA

would refuse to abide by a court order for classwide

arbitration. (See Bock v. Drexel Burnham Lambert Inc.

(NYSup. Ct. 1989) 541 N.Y.S.2d 172, 174 [“Apparently, the

AAA recognizes that consolidation may be the subject of

a court order. ... ”]; Robinson v. Warner (1974) 370 F.Supp.

828, 829 [“[T]he AAA has indicated that it will abide by

the Court’s order in the event a consolidated arbitration

is deemed appropriate”]; Symphony Fab. Corp. v. Bernson

Silk Mills (NY 1963) 240 N.Y.S.2d 23, 27 [“The rules of the

American Arbitration Association do not forbid a consol-

idation or joint trial before the same arbitrator of inde-

pendent proceedings”].) As discussed above, we

conclude the trial court is not barred from issuing an

order directing classwide arbitration when the agreement

between the parties is silent and state decisional author-

ity specifically provides for such arbitration. That the

parties agreed to arbitration under AAA rules does not

prevent a court from ordering arbitration on a classwide

basis.

G. Conclusion

Congress’s purpose in enacting the act was simple -

to abolish archaic law under which courts refused to

enforce arbitration agreements, and to make voluntary

App. 35

agreements to arbitrate disputes specifically enforceable.

To that end, the act created federal substantive law

requiring that arbitration agreements be enforced. That

federal substantive law applies in both state and federal

courts. However, Congress did not intend to occupy the

entire field of arbitration. Rather, the act preempts state

law only to the extent it stands as an obstacle to the

enforcement of contractual agreements to arbitrate. As

explained in Southland Corp. v. Keating, supra, 465 U.S. at

page 10, “Congress . . . withdrew the power of the states

to require a judicial forum for the resolution of claims

which the contracting parties agreed to resolve by arbi-

tration.” California decisional authority authorizing

classwide arbitration in appropriate cases: is not preempted

by the act; does not directly conflict with the act, which is

silent as to classwide arbitration; does not stand as an

obstacle to contractual arbitration; does not conflict with

the act’s purpose; does not require a judicial forum for

resolving claims that the parties have agreed to arbitrate:

and does not otherwise divert a case from arbitration.

(Perry v. Thomas, supra, 482 U.S. at p. 491.) It does not

invalidate the arbitration agreement or condition its

enforceability on compliance with special rules not appli-

cable to contracts generally. (Doctor’s Associates, Inc. v.

Casarotto, supra, 517 U.S. at p. 687.) It will not produce

different outcomes on the merits based solely on whether

the claim is asserted in state or federal court. (Felder v.

Casey (1988) 487 U.S. 131, 138; Rosenthal v. Great Western

Financial Securities Corp., supra, 14 Cal.4th at p. 409.) The

Keating rule can facilitate the enforcement of arbitration

agreements by making clesswide arbitration available in

App. 36

appropriate cases. It can promote the expeditious resolu-

tion of cases by arbitration. In short, the federal decisio-

nal authority relied on by Blue Cross did not prevent the

respondent court from permitting discovery as to

whether to allow classwide arbitration and later poten-

tially include plaintiffs to be part of the class.

IV. DISPOSITION

The petition for a writ of mandate, prohibition, or

other appropriate relief is denied. Plaintiffs, Elizabeth

Farquhar and Laurie Winett, shall recover their costs

incurred in connection with these extraordinary writ pro-

ceedings from defendants, Blue Cross of California and

Wellpoint Health Networks, Inc.

CERTIFIED FOR PUBLICATION

TURNER, P.J.

We concur:

ARMSTRONG, J.

GODOY PEREZ, J.

App. 37

APPENDIX B

IN THE COURT OF APPEAL OF THE

STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FIVE

BLUE CROSS OF ) B122446

CALIFORNIA, et al., ) (Super. Ct. No.

Petitioners, BC179834)

v. ) (Bruce E. Mitchell,

THE SUPERIOR COURT ) Temporary Judge)

OF LOS ANGELES ) ORDER TO SHOW

COUNTY, CAUSE

Respondent. ) (Filed Jun. 11, 1998)

ELIZABETH FARQUHAR.)

et al. )

oz )

Real Parties in )

Interest. )

}

TO THE SUPERIOR COURT OF LOS ANGELES

COUNTY:

The petition for writ of mandate, filed June 1, 1998,

having been read and considered, and good cause

appearing therefore, you are he reby ordered to show

cause before this court in its courtroom at 300 South

Spring Street, Los Angeles, California 90013, on July 8,

1998, at 11:00 a.m., why the relief prayed for in the

petition should not be granted.

The return to the petition, if any, shall be filed on or

before June 22, 1998.

App. 38

The parties are notified, pursuant to Evidence Code

section 459, that in the absence of objection the court will

take judicial notice of the file of the respondent court in

Farquhar, et al. v. Blue Cross of California, et al., Los

Angeles Superior Court No. BC179834.

Pending a determination on the merits of the peti-

tion, all proceedings in the underlying action are hereby

sta yed °

WITNESS THE. HONORABLE PAUL TURNER, Pre-

siding Justice of Division Five of the Court of Appeal of

the State of California, Second Appellate District.

ATTEST my hand and the seal of this court this

day of June, 1998.

JOSEPH A. LANE, Clerk

By —

Deputy Clerk

App. 39

APPENDIX C

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF LOS ANGELES

ELIZABETH FARQUHAR, ) Case No. BC 179 834

an individual, LAURIE _—) ORDER RE:

WINETT, an individual, on ) DEFENDANTS’

behalf of themselves, and, ) PETITION TO COMPEL

all others similarly ) ARBITRATION AND

situated, ) MOTION TO STAY

Plaintiffs, ) JUDICIAL

i PROCEEDINGS

BLUE CROSS OF ) (Filed Mar. 02, 1998)

CALIFORNIA:

CALIFORNIACARE

HEALTH PLANS:

WELLPOINT HEALTH

NETWORKS, INC. each a )

corporation; |

and DOES 1 through )

5000,

Defendants.

ORDER

Defendants’ Petition to Compel Arbitration and

Motion to stay Judicial Proceedings having come on reg-

ularly for hearing on February 9, 1998, and the Court

having considered all of the Papers and oral arguments

presented by the parties in support of and opposition to

the Petition and Motion.

[T IS HEREBY ORDERED as follows:

App. 40

I. PETITION TO COMPEL ARBITRATION

A. The Petition to Compel Arbitration of the two-

named Plaintiffs’ individual claims is granted.

1. The arbitration clauses in issue are effective.

2. There has been no waiver by Defendants of

the right to arbitrate.

B. To the extent the class claims asserted in the

Complaint are certified to proceed to a class adjudication,

those claims will also be referred to binding contractual

arbitration, pursuant to the arbitration provisions in

issue.

Il. MOTION TO STAY JUDICIAL PROCEEDINGS

A. The Motion to Stay Judicial Proceedings is

granted as to the named Plaintiffs’ individual claims.

B. The Motion to Stay Judicial Proceedings is

denied as to the class claims alleged in the Complaint.

Discovery shall continue as to the class claims for pur-

poses of a possible class certification motion and, as set

forth supra; if a class is certified, the class claims will be

referred to class-wide arbitration for the following rea-

sons:

l. Asa preliminary matter, the Court notes that

class action treatment is a valuable procedural

tool, for both the Court and parties, in appropri-

ate cases. It should not be lightly discarded.

2. Class-wide arbitration is permitted in Cali-

fornia. Keating v. Superior Court, 31 Cal.3d 584,

613-14, 183 Cal.Rptr. 360 (1982); Izzy v. Mesquite

Country Club, 186 Cal.App.3d 1309, 1322 (1986).

App. 41

3. The issue is whether the Federal Arbitration

Act (“FAA”) bars class arbitration, where the

parties’ agreement is silent on the subject.

(a) The United States Supreme Court in

Southland Corp. v. Keating, 465 U.S. 1, 104

S.Ct at 857-58, declined to decide the issue.

(b) Two of the federal decisions cited in

support of Defendants’ Petition and Motion

hold that Section 4 of the FAA precludes

class arbitration where the agreement is

silent on that issue, on a theory of strict

construction of the agreement - what the

parties agreed upon, and no more.

Movie-Dine, Inc., 449 F.Supp. 945, 947-48

(E.D. Penn. 1978), cited in support of Defen-

dants’ Petition, is unclear, but may have

ordered the class claims to arbitration.

4. A plaintiff in a civil action has an inherent

and pre-existing right to sue as a class represen-

tative, and to bring a class action, unless that

right is bargained away.

5. The arbitration Provision in question is silent

on the issue of whether class arbitration is per-

mitted. It states merely that “any” dispute will be

resolved in arbitration. This does not clearly and

expressly bargain away the right to sue as a class

action, or to be a class representative. It would

have been easy enough to specify that arbitration

was to be individual, only.

6. The arbitration Provision in issue is one of

adhesion, drafted by the Defendants. Any ambi-

guities or uncertainties as to its scope should be

construed against the drafter.

App. 42

7. The federal authorities cited hold that the

FAA was designed to counter judicial reluctance

against enforcing arbitration clauses, and to

place arbitration agreements “on the same foot-

ing” as other contracts. Assuming strict construc-

tion is the appropriate approach, it appears to

this Court that strict construction requires that it

enforce the contract as written, but take away no

more than was bargained for. That is how the

Court would construe any other contract provi-

sion and is what California has historically done

with arbitration agreements. See, [zzy, supra.

IT IS SO ORDERED.

DATED: MAR 02 1998

BRUCE E. MITCHELL

Commissioner of the

Superior Court of the

State of California

for the County of

Los Angeles

App. 43

APPENDIX D

Second Appellate District,

Division Five, No. B122446

5074717

ES LETS. ONIN NR sa ore am

IN THE SUPREME COURT OF CALIFORNIA ;

Ra aa er 4

BLUE CROSS OF CALIFORNIA Et Al. ;

Petitioners

LOS ANGELES COUNTY SUPERIOR COURT

Respondent

ELIZABETH FARQUHAR, Real Party In Interest

(Filed Jan. 13, 1999)

Petition for review DENIED.

The requests for an order directing depublication of

the opinion are denied.

/s/ GEORGE

Chief Justice

App. 44

APPENDIX E - STATUTORY ADDENDUM

UNITED STATES CONSTITUTION (USCS 1998) ~

ARTICLE VI, CLAUSE 2. SUPREME LAW OF LAND

This Constitution, and the Laws of the United

States which shall be made in Pursuance

thereof; and all Treaties made, or which shall be

made, under the Authority of the United States,

shall be the supreme Law of the Land; and the

Judges in every State shall be bound thereby,

any Thing in the Constitution or Laws of any

State to the Contrary notwithstanding.

UNITED STATES CODE (USCS 1998)

TITLE 9. ARBITRATION

CHAPTER 1 - GENERAL PROVISIONS

§ 1. “Maritime transactions” and “commerce” defined;

exceptions to operation of title

“Maritime transactions,” as herein defined,

means charter parties, bills of lading of water

carriers, agreements relating to wharfage, sup-

plies furnished vessels or repairs to vessels, col-

lisions, or any other matters in foreign

commerce which, if the subject of controversy,

would be embraced within admiralty jurisdic-

tion; “commerce,” as herein defined, means

commerce among the several States or with for-

eign nations, or in any Territory of the United

States or in the District of Columbia, or between

any such Territory and another, or between any

such Territory and any State or foreign nation,

or between the District of Columbia and any

State or Territory or foreign nation, but nothing

herein contained shall apply to contracts of

employment of seamen, railroad employees, or

§ 2.

§ 3.

App. 45

any other class of workers engaged in foreign or

interstate commerce.

Validity, irrevocability and enforcement of agree-

ments to arbitrate

A written provision in any maritime transaction

or a contract evidencing a transaction involving

commerce to settle by arbitration a controversy

thereafter arising out of such contract or trans-

action, or the refusal to perform the whole or

any part thereof, or an agreement in writing to

submit to arbitration an existing controversy

arising out of such a contract, transaction, or

refusal, shall be valid, irrevocable, and enforce-

able, save upon such grounds as exist at law or

in equity for the revocation of any contract.

Stay of proceedings where issue therein referable

to arbitration

If any suit or proceeding be brought in any of

the courts of the United States upon any issue

referable to arbitration under an agreement in

writing for such arbitration, the court in which

such suit is pending, upon being satisfied that

the issue involved in such suit or proceeding is

referable to arbitration under such an agree-

ment, shall on application of one of the parties

Stay the trial of the action until such arbitration

has been had in accordance with the terms of

the agreement, providing the applicant for the

Stay is not in default in proceeding with such

arbitration.

App. 46

Failure to arbitrate under agreement; petition to

United States court having jurisdiction for order

to compel arbitration; notice and service thereof;

hearing and determination

A party aggrieved by the alleged failure,

neglect, or refusal of another to arbitrate under

a written agreement for arbitration may petition

any United States district court which, save for

such agreement, would have jurisdiction under

Title 28, in a civil action or in admiralty of the

subject matter of a suit arising out of the contro-

versy between the parties, for an order directing

that such arbitration proceed in the manner pro-

vided for in such agreement. Five days’ notice in

writing of such application shall be served upon

the party in default. Service thereof shall be

made in the manner provided by the Federal

Rules of Civil Procedure. The court shall hear

the parties, and upon being satisfied that the

making of the agreement for arbitration or the

failure to comply therewith is not in issue, the

court shall make an order directing the parties

to proceed to arbitration in accordance with the

terms of the agreement. The hearing and pro-

ceedings, under such agreement, shall be within

the district in which the petition for an order

directing such arbitration is filed. If the making

of the arbitration agreement or the failure,

neglect, or refusal to perform the same be in

issue, the court shall proceed summarily to the

trial thereof. If no jury trial be demanded by the

party alleged to be in default, or if the matter in

dispute is within admiralty jurisdiction, the

court shall hear and determine such issue.

Where such an issue is raised, the party alleged

App. 47

to be in default may, except in cases of admi-

ralty, on or before the return day of the notice of

application, demand a jury trial of such issue,

and upon such demand the court shall make an

order referring the issue or issues to a jury in

the manner provided by the Federal Rules of

Civil Procedure, or may specially call a jury for

that purpose. If the jury find that no agreement

in writing for arbitration was made or that there

is no default in proceeding thereunder, the pro-

ceeding shall be dismissed. If the jury find that

an agreement for arbitration was made in writ-

ing and that there is a default in proceeding

thereunder, the court shall make an order sum-

marily directing the parties to proceed with the

arbitration in accordance with the terms thereof.

* * ~

§ 6. Application heard as motion

Any application to the court hereunder shall be

made and heard in the manner provided by law

for the making and hearing of motions, except

as otherwise herein expressly provided.

TITLE 28 - JUDICIARY AND JUDICIAL PROCEDURE

(USCS 1998)

PART IV - JURISDICTION AND VENUE

§ 1257. State courts; certiorari

(a) Final judgments or decrees rendered by

the highest court of a State in which a decision

could be had, may be reviewed by the Supreme

Court by writ of certiorari where the validity of

a treaty or statute of the United States is drawn

App. 48

in question or where the validity of a statute of

any State is drawn in question on the ground of

its being repugnant to the Constitution, treaties,

or laws of the United States, where any title,

right, privilege, or immunity is specially set up

or claimed under the Constitution or the treaties

or statutes of, or any commission held or

authority exercised under, the United States.

(b) For the purposes of this section, the

term “highest court of a State” includes the Dis-

trict of Columbia Court of Appeals.

PART V —- PROCEDURE

§ 2101. Supreme Court; time for appeal or certiorari;

docketing; stay

* * *»

tiorari intended to bring any judgment or decree

in a civil action, suit or proceeding before the

Supreme Court for review shall be taken or

applied for within ninety days after the entry of

such judgment or decree. A justice of the

Supreme Court, for good cause shown, may

extend the time for applying for a writ of cer-

tiorari for a period not exceeding sixty days.

* + *

(f) In any case in which the final judgment

or decree of any court is subject to review by the

Supreme Court on writ of certiorari, the execu-

tion and enforcement of such judgment or

decree may be stayed for a reasonable time to

enable the party aggrieved to obtain a writ of

certiorari from the Supreme Court. The stay may

be granted by a judge of the court rendering the

App. 49

judgment or decree or by a justice of the

Supreme Court, and may be conditioned on the

giving of security, approved by such judge or

justice, that if the aggrieved party fails to make

application for such writ within the period allot-

ted therefor, or fails to obtain an order granting

his application, or fails to make his plea good in

the Supreme Court, he shall answer for all dam-

ages and costs which the other party may sus-

tain by reason of the stay.

* * 4

FEDERAL RULES OF CIVIL PROCEDURE (USCS 1998)

PART VI - TRIALS

Rule 42. Consolidation; Separate Trials

(a) Consolidation. When actions involving

a common question of law or fact are pending

before the court, it may order a joint hearing or

trial of any or all the matters in issue in the

actions; it may order all the actions consoli-

dated; and it may make such orders concerning

proceedings therein as may tend to avoid unnec-

essary costs or delay.

+ * *

CALIFORNIA CODE OF CIVIL PROCEDURE

(WEST’S 1999)

TITLE 9 - ARBITRATION

CHAPTER 2 - ENFORCEMENT OF

ARBITRATION AGREEMENTS

§ 1281.3. Consolidation of Separate Arbitration Pro-

ceedings.

A party to an arbitration agreement may peti-

tion the court to consolidate separate arbitration

App. 50

proceedings, and the court may order consolida-

tion of separate arbitration proceedings when:

(1) Separate arbitration agreements or pro-

ceedings exist between the same parties; or one

party is a party to a separate arbitration agree-

ment or proceeding with a third party; and

(2) The disputes arise from the same transac-

tions or series of related transactions; and

(3) There is common issue or issues of law or

fact creating the possibility of conflicting rulings

by more than one arbitrator or panel of arbitra-

tors.

[f all of the applicable arbitration agreements name the

same arbitrator, arbitration panel, or arbitration tribunal,

the court, if it orders consolidation, shall order all matters

to be heard before the arbitrator, panel, or tribunal agreed

to by the parties. If the applicable arbitration agreements

name separate arbitrators, panels, or tribunals, the court,

if it orders consolidation, shall, in the absence of an

agreed method of selection by all parties to the consoli-

dated arbitration, appoint an arbitrator in accord with the

procedures set forth in Section 1281.6.

In the event that the arbitration agreements in consoli-

dated proceedings contain inconsistent provisions, the

court shall resolve such conflicts and determine the rights

and duties of the various parties to achieve substantial

justice under all the circumstances.

The court may exercise its discretion under this section to

deny consolidation of separate arbitration proceedings or

to consolidate separate arbitration proceedings only as to

certain issues, leaving other issues to be resolved in sepa-

rate proceedings.

App. 51

his section shall not be applicable to an agreement to

arbitrate disputes as to the professional negligence of a

health care provider made pursuant to Section 1295.

§ 1281.6 Appointment of Arbitrators.

If the arbitration agreement provides a method

of appointing an arbitrator, that method shall be

followed. If the arbitration agreement does not

provide a method for appointing an arbitration,

the parties to the agreement who seek arbitra-

tion and against whom arbitration is sought

may agree on a method of appointing an arbitra-

tor and that method shall be followed. In the

absence of an agreed method, or if the agreed

method fails or for any reason cannot be fol-

lowed, or when an arbitrator appointed fails to

act and his or her successor has not been

appointed, the court, on petition of a party to

the arbitration agreement, shall appoint the

arbitrator.

When a petition is made to the court to appoint

a neutral arbitrator, the court shall nominate

five persons from lists of persons supplied

jointly by the parties to the arbitration or

obtained from a governmental agency con-

cerned with arbitration or private disinterested

association concerned with arbitration. The par-

ties to the agreement who seek arbitration and

against whom arbitration is sought may within

five days of receipt of notice of the nominees

from the court jointly select the arbitrator

whether or not the arbitrator is among the nomi-

nees. If the parties fail to select an arbitrator

within the five-day period, the court shall

appoint the arbitrator from the nominees.

* * +

App. 52

TITLE 9.1 - ARBITRATION OF

MEDICAL MALPRACTICE

§ 1295. Arbitration Provision in Medical Services Con-

tract — Language

(a) Any contract for medical services

which contains a provision for arbitration of any

dispute as to professional negligence of a health

care provider shall have such provision as the

first article of the contract and shall be

expressed in the following language: “It is

understood that any dispute as to medical mal-

practice, that is as to whether unnecessary or

unauthorized or were improperly, negligently or

incompetently rendered, will be determined by

submission to arbitration as provided by Cali-

fornia law, and not by a lawsuit or resort to

court process except as California law provides

for judicial review of arbitration proceedings.

Both parties to this contract, by entering into it,

are giving up their constitutional right to have

any such dispute decided in a court of law

before a jury, and instead are accepting the use

of arbitration.”

(b) Immediately before the signature line

provided for the individual contracting for the

medical services must appear the following in at

least 10-point bold red type:

“NOTICE: BY SIGNING THIS CON-

TRACT YOU ARE AGREEING TO HAVE

ANY ISSUE OF MEDICAL MALPRACTICE

DECIDED BY NEUTRAL ARBITRATION

AND YOU ARE GIVING UP YOUR RIGHT

TO A JURY OR COURT TRIAL. SEE ARTI-

CLE 1 OF THIS CONTRACT.”

App. 53

all subsequent open-book account transactions

for medical services for which the contract was

signed until or unless rescinded by written

notice within 30 days of signature. Written

notice of such rescission may be given by a

guardian or conservator of the patient if the

patient is incapacitated or a minor.

(d) Where the contract is one for medical

services to a minor, it shall not be subject to

disaffirmance if signed by the minor’s parent or

legal guardian.

(e) Such a contract is not a contract of

adhesion, nor unconscionable nor otherwise

improper, where it complies with subdivisions

(a), (b) and (c) of this section.

(f) Subdivisions (a), (b), and (c) shall not

apply to any health care service plan contract

offered by an organization registered pursuant

to Article 2.5 (commencing with Section 12530)

of Division 3 of Title 2 of the Government Code,

or licensed pursuant to Chapter 2.2 (commenc-

ing with Section 1340) of Division 2 of the

Health and Safety Code, which contains an arbi-

tration agreement if the plan complies with

paragraph (10) of subdivision (a) of Section 1363

of the Health and Safety Code, or otherwise has

a procedure for notifying prospective sub-

scribers of the fact that the plan has an arbitra-

tion provision and the plan contracts conform to

subdivision (h) of Section 1373 of the Health and

Safety Code.

(g) For the purposes of this section:

(1) “Health care provider” means any

person licensed or certified pursuant to Division

App. 54

2 (commencing with Section 500) of the Business

and Professions Code, or licensed pursuant to

the Osteopathic Initiative Act, or the Chiroprac-

tic Initiative Act, or licensed pursuant to Chap-

ter 2.5 (commencing with Section 1440) of

Division 2 of the Health and Safety Code; and

any clinic, health dispensary, or health facility,

licensed pursuant to Division 2 (commencing

with Section 1200) of the Health and Safety

Code. “Health care provider” includes the legal

representatives of a health care provider.

(2) “Professional negligence” means a

negligent act or omission to act by a health care

provider in the rendering of professional ser-

vices, which act or omission is the proximate

cause of a personal injury or wrongful death,

provided that such services are within the scope

of services for which the provider is licensed

and which are not within any restriction

imposed by the licensing agency or licensed

hospital.

CALIFORNIA HEALTH & SAFETY CODE

(WEST’S 1999)

CHAPTER 2.2 - HEALTH CARE SERVICE PLANS

ARTICLE 1 —- GENERAL

§ 1340. Citation

This chapter shall be known and may be cited as

the Knox-Keene Health Care Services Plan Act

of 1975.

App. 55

§ 1345. Definitions

As used in this chapter:

(e) “Group contract” means a contract

which by its terms limits the eligibility of sub-

scribers and enrollees to a specified group.

(f) “Health care service plan” or “spe-

cialized health care service plan” means either

of the following:

(1) Any person who undertakes to

arrange for the provision of health care services

to subscribers or enrollees, or to pay for or to

reimburse any part of the cost for those services,

in return for a prepaid or periodic charge paid

by or on behalf of the subscribers or enrollees.

(2) Any person, whether located

within or outside of this state, who solicits or

contracts with a subscriber or enrollee in this

state to pay for or reimburse any part of the cost

of, or who undertakes to arrange or arranges

for, the provision of health care services that are

to be provided wholly or in part in a foreign

country in return for a prepaid or periodic

charge paid by or on behalf of the subscriber or

enrollee.

(j) “Person” means any person, individual,

firm, association, organization, partnership,

business trust, foundation, labor organization,

corporation, limited liability company, public

agency, or political subdivision of the state.

App. —>

* + *

(0) “Specialized health care service plan

contract” means a contract for health care ser-

vices in a single specialized area of health care,

including dental care, for subscribers or

enrollees, or which pays for or which reim-

burses any part of the cost for those services, in

return for a prepaid or periodic charge paid by

or on behalf of the subscribers or enrollees.

(p) “Subscriber” means the person who is

responsivie for payment to a plan or whose

employment or other status, except for family

dependency, is the basis for eligibility for mem-

bership in the plan.

(q) Unless the context indicates otherwise,

“plan” refers to health care service plans and

specialized health care service plans.

(r) “Plan contract” means a contract

between a plan and its subscribers or enrollees

or a person contracting on their behalf pursuant

to which health care services, including basic

health care services, are furnished; and unless

the context otherwise indicates it includes spe-

cialized health care service plan contracts; and

unless the context otherwise indicates it

includes group contracts.

* * *

App. 57

ARTICLE 3.1 - SMALL EMPLOYER GROUP ACCESS

TO CONTRACTS FOR HEALTH CARE SERVICES

§ 1357.51. Preexisting conditions; exclusions prohib-

ited; waiting or affiliation periods; waiv-

ered conditions

(a) No plan contract that covers three or

more enrollees shall exclude coverage for any

individual on the basis of a preexisting condi-

tion provision for a period greater than six

months following the individual’s effective date

of coverage. Preexisting condition provisions

contained in plan contracts may relate only to

conditions for which medical advice, diagnosis,

care, or treatment, including use of prescription

drugs, was recommended or received from a

licensed health practitioner during the six

months immediately preceding the effective

date of coverage.

(b) No plan contract that covers one or

two individuals shall exclude coverage on the

basis of a preexisting condition provision for a

period greater than 12 months following the

individual's effective date of coverage, nor shall

limit or exclude coverage for a specific enrollee

by type of illness, treatment, medical condition,

or accident, except for satisfaction of a preexist-

ing condition clause pursuant to this article.

Preexisting condition provisions contained in

plan contracts may relate only to conditions for

which medical advice, diagnosis, care, or treat-

ment, including use of prescription drugs, was

recommended or received from a licensed health

practitioner during the 12 months immediately

preceding the effective date of coverage.

App. 58

ing condition provision may impose a waiting

or affiliation period not to exceed 60 days,

before the coverage issued subject to this article

shall become effective. During the waiting or

affiliation period, the plan is not required to

provide health care services and no premium

shall be charged to the subscriber or enrollee.

(d) A plan that does not utilize a preexist-

ing condition provision in plan contracts that

cover one or two individuals may impose a con-

tract provision excluding coverage for waivered

conditions. No plan may exclude coverage on

the basis of a waivered condition for a period

greater than 12 months following the individ-

ual’s effective date of coverage. A waivered con-

dition provision contained in plan contracts may

relate only to conditions for which medical

advice, diagnosis, care, or treatment, including

use of prescription drugs, was recommended or

received from a licensed health practitioner dur-

ing the 12 months immediately preceding the

effective date of coverage.

(e) In determining whether a preexisting

condition provision, a waivered condition provi-

sion, or a waiting or affiliation period applies to

any enrollee, a plan shall credit the time the

enrollee was covered under creditable coverage,

provided the enrollee becomes eligible for cov-

erage under the succeeding plan contract within

62 days of termination of prior coverage, exclu-

sive of any waiting or affiliation period, and

applies for coverage under the succeeding plan

within the applicable enrollment period. A plan

shall also credit any time an eligible employee

must wait before enrolling in the plan, including

App. 59

any postenrollment or employer-imposed wait-

ing or affiliation period.

However, if a person’s employment has ended,

the availability of health coverage offered

through employment or sponsored by an

employer has terminated, or an employer’s con-

tribution toward health coverage has termi-

nated, a plan shall credit the time the person

was covered under creditable coverage if the

person becomes eligible for health coverage

offered through employment or sponsored by an

employer within 180 days, exclusive of any

waiting or affiliation period, and applies for

coverage under the succeeding plan contract

within the applicable enrollment period.

(f) No plan shall exclude late enrollees

from coverage for more than 12 months from the

date of the late enrollee’s application for cover-

age. No plan shall require any premium or other

periodic charge to be paid by or on behalf of a

late enrollee during the period of exclusion from

coverage permitted by this subdivision.

(g) A health care service plan issuing

group coverage may not impose a preexisting

condition exclusion to the following:

(1) To a newborn individual, who, as

of the last day of the 30-day period beginning

with the date of birth, has applied for coverage

through the employer-sponsored plan.

(2) Toa child who is adopted or placed

for adoption before attaining 18 years of age and

who, as of the last day of the 30-day period

beginning with the date of adoption or place-

ment for adoption, is covered under creditable

coverage and applies for coverage through the

App. 60

employer-sponsored plan. This provision shall

not apply if, for 63 continuous days, the child is

not covered under any creditable coverage.

(3) To a condition relating to benefits

for pregnancy or maternity care.

(h) An individual’s period of creditable

coverage shall be certified pursuant to subdivi-

sion (e) of Section 2701 of Title XXVII of the

federal Public Health Services Act, 42 U.S.C.

Sec. 300gg(e).

§ 1363.1 Binding arbitration included as contract term;

required disclosures and conditions

Any health care service plan that includes terms

that require binding arbitration to settle dis-

putes 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 the following conditions:

(a) 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.

(b) The disclosure shall appear as a sepa-

rate article in the agreement issued to the

employer group or individual subscriber and

shall be prominently displayed on the enroll-

ment form signed by each subscriber or

enrollee.

whether the subscriber or enrollee is waiving

his or her right to a jury trial for medical mal-

practice, other disputes relating to the delivery

App. 61

of service under the plan, or both, and shall be

substantially expressed in the wording provided

in subdivision (a) of Section 1295 of the Code of

Civil Procedure.

(d) In any contract or enrollment agree-

ment for a health care service plan, the dis-

closure 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 enroliing in the health care

service plan.

MASSACHUSETTS GENERAL LAWS

ANN. (WEST’S 1999)

PART III - COURTS, JUDICIAL OFFICERS AND

PROCEEDINGS IN CIVIL CASES

TITLE IV - CERTAIN WRITS AND PROCEEDINGS

IN SPECIAL CASES

CHAPTER 251 - UNIFORM ARBITRATION ACT FOR

COMMERCIAL DISPUTES

2A. Consolidation or Severance of Arbitration Pro-

ceedings

A party aggrieved by the failure or refusal of

another to agree to consolidate one arbitration

proceeding with another or others, for which

the method of appointment of the arbitrator or

arbitrators is the same, or to serve one arbitra-

tion proceeding from another or others, may

apply to the superior court for an order for such

consolidation or such severance. The court shall

proceed summarily to the determination of the

issue so raised. If a claimant under section

twenty-nine of chapter one hundred and forty-

App. 62

nine applies for an order for consolidation or

severance of such proceedings, the issue shall be

decided under the applicable provisions of said

section twenty-nine of said chapter one hundred

and forty-nine governing consolidation or sever-

ance of such actions; otherwise the issue shall be

decided under the Massachusetts Rules of Civil

Procedure governing consolidation and sever-

ance of trials and the court shall issue an order

accordingly. No provisions in any arbitration

agreement shall bar or prevent action by the

court under this section.

HISTORY: 1977, 414

App. 63

APPENDIX F

AMERICAN ARBITRATION ASSOCIATION

COMMERCIAL ARBITRATION RULES (1998)

§ R-1. Agreement of Parties

The parties shall be deemed to have made these

rules a part of their arbitration agreement when-

ever they have provided for arbitration by the

American Arbitration Association (hereinafter

AAA) under its Commercial Arbitration Rules

or for arbitration by the AAA of a domestic

commercial dispute without specifying particu-

lar rules. These rules and any amendment of

them shall apply in the form in effect at the time

the demand for arbitration or submission agree-

ment is received by the AAA. The parties, by

written agreement, may vary the procedures set

forth in these rules.

+ * +

§ R-4. National Panel of Arbitrators

The AAA shall establish and maintain a

National Panel of Commercial Arbitrators and

shall appoint arbitrators as provided in these

rules. The term “arbitrator” in these rules refers

to the arbitration panel, whether composed of

one or more arbitrators and whether the arbitra-

tors are neutral or party-appointed.

* * +

§ R-8. Jurisdiction

(a) The arbitrator shall have the power to rule

on his or her own jurisdiction, including any

App. 64

objections with respect to the existence, scope or

validity of the arbitration agreement.

(b) The arbitrator shall have the power to

determine the existence or validity of a contract

of which an arbitration clause forms a part. Such

an arbitration clause shall be treated as an

agreement independent of the other terms of the

contract. A decision by the arbitrator that the

contract is null and void shall not for that rea-

son alone render invalid the arbitration clause.

the arbitrator or to the arbitrability of a claim or

counterclaim no later than the filing of the

answering statement to the claim or counter-

claim that gives rise to the objection. The arbi-

trator may rule on such objections as a

preliminary matter or as part of the final award.

* * *

§ R-13. Appointment from Panel

If the parties have not appointed an arbitrator

and have not provided any other method of

appointment, the arbitrator shall be appointed

in the following manner:

(a) Immediately after the filing of the sub-

mission or the answering statement or the expi-

ration of the time within which the answering

statement is to be filed, the AAA shall send

simultaneously to each party to the dispute an

identical list of names of persons chosen from

the panel. The parties are encouraged to agree to

an arbitrator from the submitted list and to

advise the AAA of their agreement.

App. 65

(b) If the parties, are unable to agree upon

an arbitrator, each party to the dispute shall

have 15 days from the transmittal date in which

to strike names ovjectec/ to, number the remain-

ing names in order of preference, and return the

list to the AAA. If a party does not return the

list within the time specified, all persons named

therein shall be deemed acceptable. From

among the persons who have been approved on

both lists, and in accordance with the desig-

nated order of mutual preference, the AAA shall

invite the acceptance of an arbitrator to serve. If

the parties fail to agree on any of the persons

named, or if for any other reason the appoint-

ment cannot be made from the submitted lists,

the AAA shall have the power to make the

appointment from among other members of the

panel without the submission of additional lists.

wise no later than 15 days after the commence-

ment of an arbitration, if the notice of

arbitration names two or more claimants or two

or more respondents, the AAA shall appoint all

the arbitrators.

§ R-14. Direct Appointment by a Party

(a) If the agreement of the parties names

an arbitrator or specifies a method of appointing

an arbitrator, the designation or method shall be

followed. The notice of appointment, with the

name and address of the arbitrator, shall be filed

with the AAA by the appointing party. Upon the

request of any appointing party, the AAA shall

submit a list of members of the panel from

which the party may, if it so desires make the

appointment.

App. 66

(b) If the agreement specifies a period of

time within which an arbitrator shall be appoin-

ted and any party fails to make the appointment

within that period, the AAA shall make the

appointment.

agreement, the AAA shall notify the party to

make the appointment. If within 15 days after

such notice has been sent, an arbitrator has not

been appointed by a party, the AAA shall make

the appointment.

§ R-15. Appointment of Neutral Arbitrator by Party-

Appointed Arbitrators or Parties

(a) If the parties have selected party-

appointed arbitrators, or if such arbitrators have

been appointed as provided in Section R-14, and

the parties have authorized them to appoint a

neutral arbitrator within a specified time and no

appointment is made within that time or any

agreed extension, the AAA may appoint a neu-

tral arbitrator, who shall act as chairperson.

(b) If no period of time is specified for

appointment of the neutral arbitrator and the

party-appointed arbitrators or the parties do not

make the appointment within 15 days from the

date of the appointment of the last party-

appointed arbitrator, the AAA may appoint the

neutral arbitrator, who shall act as chairperson.

party-appointed arbitrators shall appoint the

neutral

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