Rose v. Humana Insurance Company et al

Filing 23

ORDER denying 18 Motion to Compel Arbitration. The parties shall submit a proposed revised schedule for this case within 15 days of this order (Doc. 22).Signed by Judge David G Campbell on 2/14/2018. (TCA)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Sherrin Rose, No. CV-17-08107-PCT-DGC Plaintiff, 10 11 v. 12 ORDER Humana Insurance Company, et al., 13 Defendants. 14 15 16 Defendants Humana Insurance Company and Humana Health Plan, Inc. 17 (“Humana”) have filed a motion to compel arbitration and stay all further proceedings. 18 Doc. 18. The motion is fully briefed, and the Court concludes that oral argument will not 19 aid its decision. Fed. R. Civ. P. 78(b). The Court will deny the motion. 20 I. Background. 21 Plaintiff Sherrin Rose is a licensed insurance broker who specializes in the sale of 22 insurance products to senior citizens, including Medicare insurance products. Doc. 19 23 at 2. 24 Humana (“2004 Producer Agreement”), which permitted Plaintiff to market and sell 25 Humana’s Medicare products. Doc 18-2 at 5-9; Doc. 19-1 at 2-5. The 2004 Producer 26 Agreement provides that it “may be amended at any time and from time to time by 27 written notice from a duly authorized officer of [Humana].” Doc. 19-1 at 5 ¶ 5(H). 28 In 2004, Plaintiff signed a “Group Producing Agent/Agency Contract” with 1 In 2015, Humana unilaterally modified the 2004 Producer Agreement to require 2 arbitration of “[a]ll disputes arising out of or in any way relating to the Contract or the 3 business relationship of the Parties.” Doc. 18 at 3; Doc 18-1 at 15 ¶ 15.23(B); Doc. 18-3 4 at 3 ¶ 3. On November 8, 2016, Humana terminated Plaintiff. Doc. 19 at 2. Plaintiff 5 subsequently filed this case against Humana and other defendants, alleging breach of 6 contract, breach of the covenant of good faith and fair dealing, unjust enrichment, and 7 interference with business expectancies. Doc. 5. Humana asks the Court to compel 8 arbitration of Plaintiff’s claims. Doc. 18. 9 II. Legal Standard. 10 The Federal Arbitration Act (“FAA”) “provides that arbitration agreements ‘shall 11 be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity 12 for the revocation of any contract.’” Chalk v. T-Mobile USA, Inc., 560 F.3d 1087, 1092 13 (9th Cir. 2009) (quoting 9 U.S.C. § 2). Because arbitration is a matter of contract, “a 14 party cannot be required to submit to arbitration any dispute which he has not agreed so 15 to submit.” AT&T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 648 (1986). 16 Thus, “[a] party seeking to compel arbitration has the burden under the FAA to 17 show (1) the existence of a valid, written agreement to arbitrate; and, if it exists, (2) that 18 the agreement to arbitrate encompasses the dispute at issue.” Ashbey v. Archstone Prop. 19 Mgmt., Inc., 785 F.3d 1320, 1323 (9th Cir. 2015). If a valid agreement to arbitrate 20 encompasses the dispute, the FAA requires the court “to enforce the arbitration 21 agreement in accordance with its terms.” 22 Inc., 207 F.3d 1126, 1130 (9th Cir. 2000). 23 III. Chiron Corp. v. Ortho Diagnostic Sys., Analysis. 24 Plaintiff argues that Humana failed to provide legally adequate notice of the 25 arbitration amendment to the 2004 Producer Agreement. Doc. 19 at 5. Without proper 26 notice, Plaintiff contends, she could not assent to the arbitration agreement. Id. at 6. 27 Humana responds that Plaintiff received proper notice in the form of an email 28 notification. Doc. 20 at 2-3. -2- 1 When determining whether parties have agreed to arbitrate, courts apply ordinary 2 state law contract-formation principles. Davis v. Nordstrom, Inc., 755 F.3d 1089, 1093 3 (9th Cir. 2014). The parties agree that Arizona law applies. Doc. 19 at 4; Doc. 20 at 2-4. 4 Under Arizona law, a party cannot unilaterally change the terms of a contract. 5 Demasse v. ITT Corp., 984 P.2d 1138, 1144 (Ariz. 1999) (noting the “traditional contract 6 law” rule that, once a contract is formed, “a party may no longer unilaterally modify the 7 terms” unless there is assent to and consideration for the offer to modify); Yeazell v. 8 Copins, 402 P.2d 541, 545 (Ariz. 1965) (“A contract cannot be unilaterally modified nor 9 can one party to a contract alter its terms without the assent of the other party.”). 10 Consequently, “to effectively modify a contract . . . there must be: (1) an offer to modify 11 the contract, (2) assent to or acceptance of that offer, and (3) consideration.” 12 Demasse, 984 P.2d at 1144. Humana bears the burden of proving that the contract was 13 validly modified. Id. at 1146 (“The burden is on the employer to show that the employee 14 assented with knowledge of the attempted modification and understanding of its impact 15 on the underlying contract.”); Yeazell, 402 P.2d at 546 (“He who asserts the modification 16 of a contract has the burden of proof.”). 17 To establish assent to the modification, Humana must show that Plaintiff had 18 “legally adequate notice of the modification.” Demasse, 984 P.2d at 1146. “Legally 19 adequate notice is more than the employee’s awareness of or receipt of the newest 20 handbook.” Id. Plaintiff must have been “informed of any new term” and “aware of its 21 impact on the pre-existing contract.” Id. “‘Proof that plaintiff has read the agreement 22 and continued working, has been sufficient to establish consent.’” Pinto v. USAA Ins. 23 Agency Inc. of Tex., --- F.Supp.3d ---, 2017 WL 3172871, at *2 (D. Ariz. July 26, 2017) 24 (finding sufficient evidence that plaintiff assented to arbitration agreement where plaintiff 25 electronically signed a statement acknowledging his responsibility to read employee 26 handbook, which contained the arbitration agreement, and plaintiff emailed employer 27 acknowledging that he received and agreed to the arbitration agreement); see also 28 Nghiem v. NEC Elec., Inc., 25 F.3d 1437, 1439-40 (9th Cir. 1994) (finding plaintiff -3- 1 assented to arbitration where plaintiff acknowledged receiving employee handbook, 2 which contained the arbitration agreement, and wrote a letter to his employer requesting 3 to proceed with arbitration). 4 The 2004 Producer Agreement provides that Humana “may choose to 5 communicate with [Plaintiff] through the use of mail, email, or facsimile.” Doc. 19-1 6 at 3 ¶ 2(H). It also states that the agreement “may be amended at any time and from time 7 to time by written notice from a duly authorized officer of [Humana].” Id. at 5 ¶ 5(H)(1). 8 Humana asserts that on June 16, 2015, it emailed its contracted insurance agents 9 regarding amendments to the 2004 Producer Agreement. Doc. 18-3 at 3 ¶ 3. Humana’s 10 compliance manager avows that this notification was emailed to Plaintiff and that 11 “Humana’s records indicate that this email was not rejected by [Plaintiff’s] email server.” 12 Id. at ¶¶ 4-5. 13 Plaintiff disputes that she received the email: “at no time have I ever received any 14 prior advance written notice, by mail or email, from Humana with the proposed 15 amendments.” Doc. 19-2 at 3 ¶ 6. Plaintiff attests that she “searched for and found no 16 email communications from Humana with the purported . . . amendments to the [2004] 17 Producer Agreement, including the arbitration agreement.” Id. at ¶ 7. Plaintiff states that 18 Humana normally sent proposed amendments by regular mail and required that she sign 19 and return them. Id. at ¶ 5. Indeed, she produces a copy of such a written notice and 20 amendment from 2011. Doc. 19-3 at 2-4. 21 Plaintiff further avows that she “was never aware” of these amendments until 22 Humana produced the amended agreement as part of this litigation. Doc. 19-2 at 3 ¶ 4. 23 Indeed, she declares: 24 25 26 27 28 Had I been provided with some form of advance notice of the arbitration clause being proposed as an amendment to the Producer Agreement, I would have never agreed to the inclusion of such a clause because the arbitration clause imposes an undue burden upon me. Specifically, the arbitration clause limits the timeframe by which I can context [sic] a compensation issue to 12 months, requires me to waive my right to a jury -4- 1 2 3 trial, requires me to waive my right to seek redress through a class action lawsuit, and requires that any arbitration occur in Louisville, Kentucky. Id. at ¶ 8. 4 While the 2004 Producer Agreement does permit emailing written notice of 5 contract modifications (see Doc. 19-1 at 3 ¶ 2(H), 5 ¶ 5(H)(1)), Humana provides no 6 evidence that Plaintiff acknowledged receipt of the email or that she electronically signed 7 or authorized the proposed amendments. Humana also fails to produce the actual email it 8 sent her, describe its contents, or even claim that it described the amendments or called 9 attention to the arbitration provision. 10 Thus, even if the evidentiary dispute about whether Plaintiff received the email is 11 set aside and Humana’s evidence of sending the email is accepted as true, it shows only 12 that an email was sent to Plaintiff and not rejected by her server. It does not show that 13 Plaintiff read the email or the allegedly attached amendments, and it does not show that 14 she understood the email and assented to the arbitration agreement it contained. See 15 Demasse, 984 P.2d at 1146 (“Legally adequate notice is more than the employee’s . . . 16 receipt of the [modifications].”); Pinto, 2017 WL 317287, at *2 (“‘Proof that plaintiff has 17 read the agreement and continued working, has been sufficient to establish consent.’”) 18 (emphasis added); see also Douglas v. U.S. Dist. Ct. for Cent. Dist. of Cal., 495 19 F.3d 1062, 1066 (9th Cir. 2007) (noting that “‘an offeree cannot actually assent to an 20 offer [to modify] unless he knows of its existence’”). 21 In short, Humana has not carried its burden of establishing a valid arbitration 22 agreement. It has not shown that Plaintiff knew about or assented to the unilateral 23 amendment of the 2004 Producer Agreement, and, without that amendment, the 24 agreement includes no arbitration provision. 25 26 27 28 -5- 1 IT IS ORDERED that Humana’s motion to compel arbitration (Doc. 18) is 2 denied. The parties shall submit a proposed revised schedule for this case within 15 days 3 of this order (Doc. 22). 4 5 Dated this 14th day of February, 2018. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6-

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