Opposition Brief — Blue Cross of California v. California Superior Court, Los Angeles County

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4 ) Supreme Court, U.S,

: FILED

No. 98-1636

MAY 42 1999

In The CLERK

Supreme Court of the United States

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

BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI

CHARLES S. ZIMMERMAN

Barry G. REED

(Counsel of Record)

ZIMMERMAN REED

901 N. Third St.

Minneapolis, Minnesota 55401

(612) 341-0400

Rosert H. McNett, Jr.

Jay R. Taytor

Freperick A. McNEeILi

Ivir, McNert & Wyatt

201 N. Figueroa St., #1150

Los Angeles, California 90012-2631

(213) 482-8890

Attorneys for Respondents,

Real Parties in Interest,

Elizabeth Farquhar and Laurie Winett

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

OR CALL COLLECT (402) 342-2831

TSS pitt ws ‘

LT ACC AE thie eRS Ni ath hE ia TAD an hin

Ria id

QUESTIONS PRESENTED

Whether the court should dismiss this appeal from

the denial of an interlocutory writ in a case where there

has been no final judgment of any kind.

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

preempts California law that is not hostile to arbitration,

nor hostile to the parties’ stated agreement to arbitrate.

Whether the Federal Arbitration Act pre-empts all

state laws that are not procedurally identical to it, even

where that state law encourages arbitration and supports

the parties’ agreement to arbitrate.

ceiatiiatedi.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED 20). ceeds csbeeasi eee i

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REASONS FOR DISMISSING OR DENYING THIS

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THERE > NO AIRISU TIN seis ccecsnwees 8

Il. THE DECISION OF THE CALIFORNIA COURT

OF APPEAL DOES NOT CONFLICT WITH THE

ACT OR EVEN CONFLICT WITH THE FED-

ERAL AUTHORITIES RELIED UPON BY BLUE

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TABLE OF AUTHORITIES

Page

FEDERAL CASES

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

EES ON ON SIE ae go eae 11

Cox Broadcasting Corp. v. Cohn, 420 U.S. 469, 95

ae Aue, Oo Bee O28 (1975), ..... cca eee ces 9

Jefferson v. City of Tarrant, Alabama, 522 U.S. 75

Aime Dai dw 0 Cod Wy oon Sa bed 0 ¥ vih'e's:s 1, 7, 8, 9, 10

Market Street R. Co. v. Railroad Comm'n of Cal., 324

US. 348, _ S.Ct. 770, 89 L.Ed. 1171 (1945)........ 8

Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52

Se eine Cin es eke shee s We Sev ee sds ceeded 12

Radio Station WOW, Inc. v. Johnson, 326 U.S. 120, 65

tate BaF ep OF tot, DOP (1945)... occ ccc cece cence 9

Volt Inf. Sciences v. Leland Stanford Jr. U., 489 U.S.

EE Ge 04 0G oe Gs 06s s ey dic ede bevises vec 3, 40

State Cases

Blue Cros. of California v. Superior Court, 67

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

Gainey v. Occidental Land Research, 186 Cal.App.3d

SUE EO UNNEA I Cn 0 C UN ees ine be br pve kos be vv bss bs 6

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

I ES er Reg FU Uae ee ae ee 6, 13

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

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

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

ME Ek AE DUOD okies cutis cccece ese 6, 7, 11

STATUTES

Ey a ik 5 Gan Ge 0s bby wh bc cee 68 | ae ae

JURISDICTION - OBJECTION

This Court lacks jurisdiction to grant Blue Cross’s

petition. Contrary to Blue Cross’s reliance on 28 U.S.C.

§1257(a), there has been no “final judgment” in this case.

Consequently, Respondents hereby object to the petition

based upon this Court's lack of jurisdiction. This petition

seeks review of an interlocutory opinion of a California

Court of Appeal. That opinion is not reviewable by this

Court, because no “final judgment” has been entered in

this case as that requirement is set forth in the case of

Jefferson v. City of Tarrant, Alabama, 522 U.S. 75 (1997).

Respondents submit, therefore, that the subject petition

must be dismissed. This objection is briefed in further

detail under the section entitled “REASONS FOR DIS-

MISSING OR DENYING THE PETITION.”

INTRODUCTION

During the pendency of this (not yet certified) con-

sumer class action against Blue Cross of California et al.

(collectively “Blue Cross”), an interlocutory writ proceed-

ing was taken up by Petitioner Blue Cross to the Califor-

nia Court of Appeal. A published opinion resulted

concerning the parties’ skirmish over whether the parties

should be permitted to conduct pretrial discovery on the

class issues. The California Court of Appeal ruled

adversely to Blue Cross, affirming the trial court’s denial

of Blue Cross’s motion to stay the litigation. The court’s

ruling was based on the grounds that the pretrial discov-

ery on the class issues could proceed, because the court

noted that it intended to refer the case to the American

Arbitration Association (“AAA”) for a classwide arbitra-

tion, if the court ruled favorably on the plaintiffs’ motion

for class certification. (Petitioners’ App. 40)

Blue Cross then filed a petition for review in the

California Supreme Court to have the appellate court's

opinion reviewed. However, the California Supreme

court denied the petition for review, leaving the trial

court’s order denying the motion to stay the litigation to

stand. Consequently, discovery on the class issues was

permitted to go forward.

By way of this petition, Blue Cross is challenging the

California Court of Appeal’s interlocutory opinion, which

opinion permits the parties to conduct discovery on the

class issues. However, no final judgment has been

entered in this case. In fact, the trial court has not even

heard the plaintiffs’ motion to certify the class and to

certify the plaintiffs as the representatives of the class.

OPINIONS BELOW

The California Court of Appeal, Second Appellate

District, Division Five issued an opinion concerning the

interlocutory writ proceeding on October 6, 1998. The

same is reported as Blue Cross of California v. Superior

Court, 67 Cal.App.4th 42, 78 Cal.Rptr.2d 779 (1998). Blue

Cross filed a petition for review in the California

Supreme Court. The California Supreme Court denied the

petition for review. The denial was entered on January 13,

1999. Following the California Supreme Court’s denial of

the petition for review, the California Court of Appeal

issued a Remittitur through which jurisdiction over the

case was returned to the trial court for further proceed-

ings. The trial court held such jurisdiction, until the sub-

ject petition for a writ of certiorari was filed by Blue

Cross. The California trial court has not yet conducted a

hearing nor entered any orders concerning the Respon-

dents’ motion for class certification, which motion seeks

an order certifying the class and certifying the plaintiffs

as the representatives of that class. Further, no final judg-

ment has been entered in this case.

STATEMENT OF THE CASE

The two named plaintiffs, Elizabeth Farquhar and

Laurie Winett, are pursuing this consumer class action

against Blue Cross. The named plaintiffs are the Respon-

dents to this petition. The plaintiffs allege in the com-

plaint that Blue Cross has “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 arbi-

tration.

The arbitration provision is in Blue Cross’s stan-

dardized health plan contract. In the contract booklets

entitled the “Prudent Buyer Plan Service Agreement and

Combined Evidence of Coverage and Disclosure Form” it

states: “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 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

[{¥] B. Any disputes regarding a claim for damages within

the jurisdictional limits of the small claims court will be

resolved in such court. [{] C. The arbitration is begun by

the Member making written demand on Blue Cross. The

arbitration will be conducted by the American Arbitra-

tion Association according to its commercial rules of arbi-

tration. 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 pro-

vide for the judicial review of arbitration proceedings.”

Blue Cross filed a petition in the trial court to compel

arbitration of the individual plaintiffs’ claims and a

motion to stay the litigation. Plaintiffs opposed the peti-

tion to compel arbitration and the motion to stay the

litigation, including all classwide discovery. Plaintiffs

argued that the motion to stay the classwide discovery

should be denied, because California law is favorable to

arbitration and California procedural law concerning the

means of conducting the arbitration was not preempted

by the act. The trial court granted Blue Cross’s petition to

compel arbitration and to stay judicial proceedings as to

the individual plaintiffs, but denied Blue Cross’s 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 certification motion and, . . . if a class is

certified, the class claims will be referred to class-wide

arbitration ...”, which is permitted under California law.

(Petitioners’ App. 40)

Blue Cross then filed an interlocutory petition for a

writ of mandate, prohibition or other appropriate relief.

Blue Cross contended that the act preempts California

arbitration law and preempts California procedural law

that permits classwide arbitration. It argued that the trial

court had therefore erred in denying the motion to stay

the litigation as a whole. Blue Cross supported its request

for interlocutory relief on the grounds that if classwide

arbitration is not allowed [as a matter of federal law],

then the parties would waste judicial resources and be

burdened with unnecessary expenditure of time and

money. (Petitioners’ App. 5) The California Court of

Appeal issued an order to show cause why the relief

prayed for in the petition should not be granted. The

California Court of Appeal identified the issue as

whether the act prohibits classwide arbitration in cases

where the agreement between the parties is silent on the

issue of a classwide arbitration and where the state deci-

sional authority specifically provides for such classwide

arbitration. The California Court of Appeal held a trial

court did possess the authority to enter an order denying

a request to stay class discovery on the grounds that a

trial court may, under appropriate circumstances, certify

a class and order arbitration on a classwide basis. (Peti-

tioners’ App. 34) The California Court of Appeal deferred

any ruling as to whether this case presents the appropri-

ate circumstances for a classwide arbitration as prema-

ture. (Petitioners’ App. 33)

Additionally, the California Court of Appeal

explained: “[{] Blue Cross also contends that an order

compelling classwide arbitration in this case would inter-

fere with the parties’ intentions; it asserts it bargained for

individual arbitration conducted according to the rules of

the American Arbitration Association (AAA), not this

‘hybrid’ classwide arbitration requiring judicial interven-

tion. This argument is premature. [emphasis added] The

only issue before this court is whether the Keating rule is

preempted by the act. No order has been entered certify-

ing 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 discretion upon consider-

ation 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 1309, at pp. 1314, 1322 (1986).)

Moreover, under Keating, an arbitration agreement that is

silent as to classwide arbitration is amenable to such

procedure.” (Petitioners’ App. 33)

REASONS FOR DISMISSING OR

DENYING THIS PETITION

This court should deny this petition on the grounds

there is no jurisdiction. This court may not review the

interlocutory opinion issued by the California Court of

~~,

Appeal in this case, because this case has not yet pro-

ceeded to a “final judgment” as that term is used in 28

U.S.C. §1257(a). Jefferson v. City of Tarrant, Alabama, 522

U.S. 75 (1997). Additionally, the petition should be denied

because it does not raise issues that warrant review by

this court.

Significantly, Blue Cross has made a factually mis-

leading statement in the subject petition. (Rule 15.6) Blue

Cross asserts that “[the AAA’s commercial rules] do not

provide for classwide arbitration ... ” (petition, p. 10)

However, Blue Cross is glossing over the fact that the

California Court of Appeal found Blue Cross failed to

make a sufficient showing to support such a finding. The

California Court of Appeal found: “[flurther, there has

been no showing that an order compelling classwide

arbitration would conflict with the agreement to proceed

under AAA rules.” (Petitioners’ App. 33)

This case is not yet far enough along in the proceed-

ings to provide a complete evidentiary record to address

the Keating issue. This case has not yet proceeded to a

hearing and ruling in the trial court, or any court, con-

cerning plaintiffs’ motion to have the class certified.

Because the trial court has not made factual findings

concerning the certification of the class, this petition may

be rendered moot when this case is permitted to go

forward in the lower courts. Therefore, even if there were

a “final judgment” in this case (which there is not), this

case is not a good vehicle for addressing the concerns

raised by Blue Cross.

Finally, the decision of the California Court of Appeal

does not conflict with the act, or even conflict with the

federal authorities relied upon by Blue Cross.

I. THERE IS NO JURISDICTION

This Court lacks jurisdiction to grant Blue Cross’s

petition. Contrary to Blue Cross’s reliance on 28 U.S.C.

§1257(a), there has been no “final judgment” in this case.

Consequently, Respondents hereby object to the petition

based upon this Court’s lack of jurisdiction. This petition

focuses on an interlocutory opinion of a California Court

of Appeal. That opinion is not reviewable by this Court,

because there has been no “final judgment” in this case as

that requirement is set forth in the case of Jefferson v. City

of Jarrant, Alabama, 522 U.S. 75 (1997). Respondents sub-

mit, therefore, that this subject petition must be dis-

missed.

The text of 28 U.S.C. §1257(a) is set forth in the

Petitioners’ Appendix at pages “App. 47-48.” This Court

has held that: “this provision establishes a firm final

judgment rule. To be reviewable by this Court, a state-

court judgment must be final ‘in two senses: it must be

subject to no further review or correction in any other

state tribunal; it must also be final as an effective deter-

mination of the litigation and not of merely interlocutory

or intermediate steps therein. It must be the final word of

a final court.’ Market Street R. Co. v. Railroad Comm'n of

Cal., 324 U.S. 548, 551, 65 S.Ct. 770, 773, 89 L.Ed. 1171

(1945). As [this Court] has recognized, the finality rule ‘is

not one of those technicalities to be easily scorned. It is an

important factor in the smooth working of our federal

system.’ Radio Station WOW, Inc. v. Johnson, 326 U.S. 120,

124, 65 S.Ct. 1475, 1478, 89 L.Ed. 509 (1945).” Jefferson v.

City of Tarrant, Alabama, 522 U.S. 75, 118 S.Ct. 481, 485-486

(1997).

As applied here, the California Court of Appeal’s

opinion has not resulted in a “final judgment.” It is an

avowedly interlocutory affirmance of a trial court’s inter-

locutory order permitting the parties to conduct pretrial

discovery. It is an interlocutory affirmance that the plain-

tiffs have a right to gather evidence in support of their

complaint’s allegations regarding the presence of the tra-

ditional elements of a class action case, such as

numerosity, commonality, typicality, adequacy of repre-

sentation, and so on. (Petitioners’ App. 40) In fact, the

plaintiffs’ motion to certify the class has not yet even

been heard or ruled upon by the trial court, much less the

final court of the state.

Moreover, this is not a case that comes within the

limited set of situations in which there is finality as to the

federal issue despite the ordering of further proceedings

in the lower state courts. This is not a case in which “the

federal issue, finally decided by the highest court in the

State, will survive and require decision regardless of the

outcome of future state-court proceedings.” Cox Broad-

casting Corp. v. Cohn, 420 U.S. 469, 480, 95 S.Ct. 1029, 1038,

43 L.Ed.2d 328 (1975). Rather, the resolution of the state-

law claims could effectively moot the federal-law ques-

tion raised here. Most notably, the motion for class certi-

fication could be denied or Blue Cross could voluntarily

relinquish its right to object to class certification in the

future in the state court proceedings. And, the same

issues, such as whether the act preempts California law,

may be revisited in a subsequent appeal. The interlocu-

tory decision may be subject to a further review or correc-

tion by the California Supreme Court. This case presents

“the typical situation in which the state courts have

resolved some but not all of the Petitioners’ claims.”

Jefferson v. City of Tarrant, Alabama, 522 U.S. 75, 118 S.Ct.

481, 486 (1997). Because the California Supreme Court has

not yet rendered a final judgment, this Court lacks juris-

diction to review the decision on the pretrial discovery

issue.

Il. THE DECISION OF THE CALIFORNIA COURT OF

APPEAL DOES NOT CONFLICT WITH THE ACT

OR EVEN CONFLICT WITH THE FEDERAL

AUTHORITIES RELIED UPON BY BLUE CROSS

The facts of this case simply do not show that there is

a conflict between federal law and state law. Contrary to

the protestations of Blue Cross, the California courts have

not run afoul of the act’s requirement that an arbitration

clause must be placed on equal footing with the other

terms of the contract. The California courts in this case

have simply enforced the bargain struck between the

parties concerning the right to arbitrate. Factually, this

contract was silent concerning a classwide arbitration.

(Petitioners’ App. 34) The California trial court thus

found that the parties did not bargain away the right to

file a class action. (Petitioners’ App. 41) The California

Appellate Court held that where the agreement is silent

on the classwide arbitration issue, the trial court may

order a classwide arbitration because state decisional

authority specifically provides for such arbitration. (Peti-

tioners’ App. 34)

Federal law does not prohibit or restrict “classwide

arbitration” to anything like the extent suggested by Blue

Cross. Under federal law, as articulated in Champ v. Siegel

Trading Co., Inc., 55 F.3d 269 (7th Cir. 1995), and the cases

on which the Seventh Circuit relied, there was no preex-

isting authority for a classwide arbitration in that particu-

lar jurisdiction of the Seventh Circuit. Under those

circumstances, the Champ court refused to read such

authority into the parties’ arbitration agreement. Here, on

the other hand, the state law of California authorizes

classwide arbitration in California. 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 (1984). Blue Cross

does not and cannot contend that the act categorically

prohibits classwide arbitration, thus there is simply no

basis upon which to invoke the very limited pre-emption

provided in the act.

It is simply not true that unless the contract in this

case expressly defines “any disputes” to include a

“classwide dispute,” the class procedures and the right to

a classwide arbitration are precluded by the contract or

the act. Blue Cross drafted the contract and did not

exclude classwide disputes from “any disputes.” Thus,

the California court ruled correctly, and Blue Cross is

disappointed by the result. The construction of the terms

of an arbitration agreement, for purposes of applying the

act, may be made under an evenhanded application of the

state’s common law of contract, and by the application of

the state’s procedures for implementing the arbitration

agreement. Volt Inf. Sciences v. Leland Stanford Jr. U., 489

U.S. 468, 478-479 (1989). This Court allows parties in

arbitration agreements to choose to apply state law. Mas-

trobuono v. Shearson Lehman Hutton, 514 U.S. 52, fn. 4

(1995). That is all that happened here. Blue Cross drafted

the agreement, and chose California law as controlling.

That law favors arbitration, thus precluding pre-emption,

and permits the arbitration to take a form that the parties

did not preclude. Where Blue Cross is getting exactly

what it bargained for, arbitration under California law, it

has no reason to be before this or any other court.

As applied in this case, the California court correctly

construed the terms of the contract to permit a classwide

arbitration under California’s procedural rules. If the case

were in a federal forum, the result may have been the

same despite the application of the rules of federal civil

procedure. There is no reason to conclude a federal court

applying the federal procedural rules would necessarily

reach a different result than a state court reached under

the application of California’s procedural rules. Most sig-

nificantly, the trial court noted that the court’s ruling was

consistent with what the result would have been, assum-

ing the federal procedures required a strict construction

of the arbitration agreement. In other words, the court

found federal law would also permit a classwide arbitra-

tion in this case. (Petitioners’ App. 41-42) Simply put,

there is no conflict between federal law and state law in

this case. Federal law encourages the arbitration the par-

ties agreed to, and California law does likewise. There is

no conflict.

The California trial court held: “7. The federal

authorities cited hold that the FAA was designed to coun-

ter judicial reluctance against enforcing arbitration

clauses, and to place arbitration agreements ‘on the same

footing’ as other contracts. Assuming strict construction 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 provision and is

what California has historically done with arbitration agree-

ments. See, Izz[i], supra.” (Petitioners’ App. 42)

Significantly, this Court has previously held that the

act does not prevent the enforcement of agreements to

arbitrate under state procedural law. Volt Inf. Sciences v.

Leland Stanford Jr. U., 489 U.S. 468, 478-479 (1989). Blue

Cross does not dispute that the federal act permits

classwide arbitration of disputes involving a private agree-

ment to arbitrate in appropriate cases. Blue Cross does not

contend that the act categorically prohibits classwide arbi-

trations.

“There is no federal policy favoring arbitration under

a certain set of procedural rules; the federal policy is

simply to ensure the enforcability, according to their terms,

of private agreements to arbitrate.” Volt Inf. Sciences v.

Leland Stanford Jr. U., 489 U.S. 468, at p. 476. Moreover,

“(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 prob-

lem, by giving courts authority to consolidate or stay

arbitration proceedings in these situations in order to min-

imize the potential for contradictory judgments. [Cita-

tion.]” Volt Inf. Sciences v. Leland Stanford Jr. U., 489 U.S.

468, at p. 476, fn. 5.

Until that authority is overturned, the parties may be

presumed to have intended that the legal rights existing

at the time the parties entered the agreement would be

enforceable as part of the implied terms of the contract.

In this case both the act and the California decisional

authority permit a trial court to require a classwide arbi-

tration where the parties have agreed to an arbitration of

“any dispute.” Blue Cross has not shown there is a con-

flict between federal and state law which warrants review

by this Court.

CONCLUSION

For the reasons set forth above, the Respondents

respectfully request this Court to dismiss or deny the

petition.

Respectfully submitted,