Fox v. Vision Service Plan

Filing 27

ORDER signed by District Judge John A. Mendez on 2/23/2017 GRANTING 16 Motion for Preliminary Injunction. (Washington, S)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 PATRICIA FOX, O.D., 12 2:16-cv-2456-JAM-DB Plaintiff, 13 14 No. v. VISION SERVICE PLAN; DOES 110, inclusive, ORDER GRANTING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION 15 Defendant. 16 Plaintiff Patricia Fox, O.D. (“Fox”) filed suit in state 17 18 court to prevent Defendant Vision Service Plan (“VSP”) from 19 enforcing its audit against Fox “due to the failure to provide 20 Fox with a lawful dispute resolution mechanism.” 21 41, ECF No. 1-1. 22 1. 23 which VSP opposed, ECF No. 18. 24 motion for preliminary injunction on February 7, 2017. 25 21. 26 Each party filed a brief, ECF Nos. 22, 23, which the Court has 27 considered. 28 granting Fox’s motion for preliminary injunction. Compl. ¶¶ 40, VSP removed the case to federal court. ECF No. Fox filed a motion for preliminary injunction, ECF No. 16, The Court held a hearing on Fox’s ECF No. The Court ordered simultaneous supplemental briefing. Id. The Court issued a minute order on February 9, 2017 1 ECF No. 24. 1 The Court gave VSP the opportunity to file a supplemental brief 2 on a case Fox cited only in her reply. 3 considered VSP’s supplemental brief on that issue. 4 sets forth in greater detail the bases for the Court’s decision 5 to grant Fox’s motion for preliminary injunction. Id. The Court has This Order 6 7 I. 8 9 FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND Fox, a Massachusetts licensed optometrist, “was a contracted doctor” with VSP. Compl. ¶ 1. VSP, a non-profit California 10 corporation with its principal place of business in Rancho 11 Cordova, California, provides vision insurance plans to millions 12 of people in the United States. 13 15. 14 15 16 17 18 19 20 21 Compl. ¶ 2; Answer ¶ 2, ECF No. Fox renewed her contract, the Network Doctor Agreement (“NDA”), with VSP in August 2015. Compl. ¶ 13. The NDA states: 11. Fair Hearing Procedure/Binding Arbitration a. Fair Hearing. In the event of a dispute as to VSP’s imposition of any applicable disciplinary action against Network Doctor [“ND”], [ND] . . . may appeal such action in accordance with the provisions and requirements, including the payment of fees and costs, set forth in the VSP Peer Review Plan and Fair Hearing Policy [“FHP”], as may be amended or replaced from time to time, and incorporated herein by reference . . . 22 23 24 b. Binding Arbitration. If the above process does not resolve the dispute, then, unless expressly disallowed by state law, any party may request final determination and resolution of the matter by mandatory binding arbitration . . . 25 26 27 28 NDA at 15, Fox Decl. Exh. 1, ECF No. 16-2. The NDA states that it incorporates the FHP by reference, NDA at 15, but VSP did not attach the FHP, a separate twenty-page 2 1 document to the NDA, see Fox Decl. ¶ 5, Exh. 3 (“FHP”), ECF No. 2 16-2. 3 obtain the FHP. 4 The FHP, but not the NDA, indicates how a provider can Id. In May 2016, VSP audited Fox and sent her a letter with the 5 results. 6 letter, VSP demanded “repayment of improper claims submitted to 7 VSP” and repayment for the cost of the audit. 8 The letter required Fox to pay $444,147 in “restitution” and 9 terminated Fox’s NDA. 10 Wasylkiw Decl., Exh. E (“Audit Letter”). In the Audit Letter at 2. Id. at 2-3. On June 6, 2016, Fox “timely requested a hearing through the 11 VSP dispute resolution process.” Compl. ¶ 35. 12 arbitration for November 4, 2016. 13 hearing to February 10, 2017. 14 No. 12. 15 dispute resolution hearing, and this Order sets forth the Court’s 16 reasons for granting Fox’s motion for a preliminary injunction. Id. VSP set VSP rescheduled that 10/26/2016 Stipulation at 2, ECF The Court enjoined VSP from holding the February 10 17 18 II. OPINION 19 A. Legal Standard 20 A court may award a preliminary injunction—an “extraordinary 21 remedy”—only “upon a clear showing that the plaintiff is entitled 22 to such relief.” 23 U.S. 7, 22 (2008). 24 plaintiff must show: (1) she will likely succeed on the merits, 25 (2) she will suffer irreparable harm without preliminary relief, 26 (3) the balance of equities tips in her favor, and (4) an 27 injunction is in the public interest. 28 Grp., 822 F.3d 1011, 1020 (9th Cir. 2016) (quoting Winter, 555 Winter v. Nat. Res. Def. Counsel, Inc., 555 To obtain a preliminary injunction, a 3 Boardman v. Pac. Seafood 1 U.S. at 20). 2 require a likelihood of success on the merits. 3 Rockies v. Cottrell, 632 F.3d 1127, 1131–32 (9th Cir. 2011). 4 “Rather, serious questions going to the merits and a hardship 5 balance that tips sharply toward the plaintiff can support 6 issuance of an injunction, assuming the other two elements of the 7 Winter test are also met.” 8 F.3d 1073, 1085 (9th Cir. 2014) (internal quotation marks 9 omitted). Issuance of an injunction does not absolutely All. for the Wild Drakes Bay Oyster Co. v. Jewell, 747 10 Fox argues the Court should grant her motion for preliminary 11 injunction to preserve the status quo “until the Court determines 12 if the dispute resolution process is legal and enforceable.” 13 Mot. at 2. 14 15 16 B. Analysis 1. Likelihood of Success on the Merits Fox contends she can likely prove that VSP’s dispute 17 resolution process is unenforceable for two reasons: (1) it 18 violates California Code of Regulations § 1300.71.38; and (2) it 19 is unconscionable. 20 21 a. Mot. at 2. Violation of § 1300.71.38 California Health and Safety Code § 1367 states that “[a]ll 22 contracts with providers shall contain provisions requiring a 23 fast, fair, and cost-effective dispute resolution mechanism 24 under which providers may submit disputes to the plan.” 25 Health & Safety Code § 1367(h)(1). 26 Cal. The California Code of Regulations implements § 1367. 27 Section 1300.71.38 of the regulations further defines the phrase 28 “fast, fair, and cost-effective dispute resolution mechanism,” 4 1 explaining that “[a]rbitration shall not be deemed a provider 2 dispute or a provider dispute resolution mechanism.” 3 Regs. tit. 28, § 1300.71.38. 4 Cal. Code The Federal Arbitration Act (“FAA”) conflicts with 5 § 1300.71.38’s ban on using arbitration as a dispute resolution 6 mechanism. 7 contract “shall be valid, irrevocable, and enforceable, save 8 upon such grounds as exist at law or in equity for the 9 revocation of any contract.” The FAA states that an arbitration provision in a 9 U.S.C. § 2. The FAA preempts 10 contrary state law, so a court cannot apply “any state statute 11 that invalidates an arbitration agreement.” 12 Corinthian Colleges, Inc., 733 F.3d 928, 932 (9th Cir. 2013). 13 Fox concedes that the FAA preempts § 1300.71.38, but she argues 14 the McCarran-Ferguson Act (“McCarran-Ferguson”) “reverse- 15 preempts” § 1300.71.38. 16 Ferguson v. Mot. at 7. VSP contends § 1300.71.38 does not invalidate the FHP for 17 three reasons: (1) § 1300.71.38 does not apply; (2) the FHP does 18 not violate § 1300.71.38; and (3) McCarran-Ferguson does not 19 reverse-preempt § 1300.71.38. 20 21 i. Opp’n at 1. Whether § 1300.71.38 Applies VSP argues § 1300.71.38 does not apply to its dispute with 22 Fox because “§ 1300.71.38 only applies to a defined subspecies 23 of ‘provider disputes.’” 24 defines “Contracted Provider Dispute” as 25 26 27 28 Opp’n at 5. Section 1300.71.38(a)(1) a contracted provider’s written notice to the plan . . . challenging, appealing or requesting reconsideration of a claim . . . that has been denied, adjusted or contested or seeking resolution of a billing determination or other contract dispute . . . or disputing a request for reimbursement of an overpayment of a claim. 5 1 Cal. Code Regs. Tit. 28, § 1300.71.38(a)(1). 2 VSP argues “[t]he definition of ‘provider dispute’ does not 3 include appeal of an adverse action taken or discipline imposed 4 as a result of a fraud investigation.” 5 that “the FHP expressly clarifies that the FHP does not apply to 6 the very disputes Section 1300.71.38 applies to, for which a 7 separate ‘fair, fast, and cost-effective resolution mechanism’ 8 has been established.” 9 it “does not apply to ordinary provider Claim Disputes.” 10 Id. Opp’n at 5. VSP adds The FHP does indeed indicate that FHP at 2. 11 Fox replies that California law defines “Contracted 12 Provider Dispute,” not VSP. 13 fact that VSP’s demand for reimbursement followed a “fraud 14 investigation” does not make § 1300.71.38 inapplicable because 15 the definition of “Contracted Provider Dispute” “says nothing 16 about the nature of the investigation that led to the dispute.” 17 Id. 18 Reply at 1. Fox argues that the Fox has demonstrated a likelihood of success on this issue. 19 First, the facts of this case track the plain language of the 20 definition of a “Contracted Provider Dispute”: Fox, a 21 “contracted provider,” sent “written notice” to VSP “seeking 22 resolution” of VSP’s demand to pay VSP over $400,000 in 23 restitution. 24 Fox Decl. ¶¶ 2, 9, 12. Second, VSP provides no case law to support its argument 25 that the fact that the dispute arose from a fraud investigation 26 makes § 1300.71.38 inapplicable. 27 authority to support the argument that the FHP falls outside 28 § 1300.71.38’s purview because the FHP states that it does not VSP also fails to cite any 6 1 apply to “ordinary dispute claims.” 2 Court concludes that Fox will likely succeed in showing that 3 § 1300.71.38 applies to this dispute between the parties. 4 5 ii. For these reasons, the Whether the FHP Violates § 1300.71.38 VSP next argues that, even if § 1300.71.38 applies, the FHP 6 does not violate the regulation. 7 the first step in the FHP cannot violate § 1300.71.38 because it 8 is not arbitration. 9 Renaissance Hotel Associates, 50 Cal. App. 4th 676 (1996), which Id. Opp’n at 6. VSP contends that VSP relies on Cheng-Canindin v. 10 states “a dispute resolution procedure is not an arbitration 11 unless there is a third party decision maker, a final and 12 binding decision, and a mechanism to assure a minimum level of 13 impartiality with respect to the rendering of that decision.” 14 Opp’n at 6 (quoting Cheng, 50 Cal. App. 4th at 687-88). 15 maintains that “[t]he fact that the hearing procedure is non- 16 binding and subject to review is dispositive of the fact that 17 the hearing procedure is not arbitration, and thus does not fall 18 within the ambit of Section 1300.71.38.” 19 VSP Id. Fox responds that the Ninth Circuit has held that 20 “arbitration need not be binding to fall within the scope of the 21 [FAA]”. 22 144 F.3d 1205, 1209 (9th Cir. 1998)). The Court finds that VSP’s 23 argument that the FHP’s first step is not arbitration because it 24 is non-binding fails because it contradicts the Ninth Circuit’s 25 statement in Wolsey. 26 Reply at 3 (quoting Wolsey, Ltd. v. Foodmaker, Inc., iii. Whether McCarran-Ferguson ReversePreempts § 1300.71.38 27 28 McCarran-Ferguson states that “[n]o Act of Congress shall 7 1 be construed to invalidate, impair, or supersede any law enacted 2 by any State for the purpose of regulating the business of 3 insurance, or which imposes a fee or tax upon such business, 4 unless such Act specifically relates to the business of 5 insurance.” 6 “specifically relate[] to the business of insurance.” 7 v. PacifiCare Behavioral Health of California, Inc., 93 Cal. 8 App. 4th 139, 149 (2001). 9 whether California enacted § 1300.71.38 “for the purpose of 10 15 U.S.C. § 1012(b). The FAA does not See Smith The Court must therefore determine regulating the business of insurance.” 11 Fox argues that § 1300.71.38 regulates the “business of 12 insurance” because it “regulates a core promise made by the plan 13 to the insured in the insurance contract: the promise to pay a 14 contracted provider directly on behalf of the insured.” 15 12. 16 regulate the relationship between the insurer and the insured, 17 it surely does so indirectly . . . because the insurer-provider 18 contract is a core promise made by the insurer to its insureds.” 19 Id. 20 payment practices ultimately, even if indirectly, furthers 21 significantly the interests of VSP’s members by ensuring that 22 the doctors the members go to are paid fairly, and as a result 23 will become and will remain contracted with VSP as in-network 24 providers.” 25 Mot. at Fox contends that “[e]ven if it does not ‘directly’ Fox also argues that “a state law regulating the claims Id. at 13. VSP argues that McCarran-Ferguson does not reverse-preempt 26 § 1300.71.38 because McCarran-Ferguson focuses on “the 27 relationship between the insurer and its policyholders,” not the 28 relationship between the insurer and the provider. 8 Opp’n at 7. 1 VSP contends that “[h]ere, just as in Royal Drug and Pireno, the 2 FHP at issue . . . has nothing to do with the relationship 3 between the insurer and the insured, but rather is between the 4 insurer and medical providers.” 5 Id. at 10. Fox responds that Royal Drug and Pireno dealt only with 6 McCarran-Ferguson’s second clause. Reply at 4. The Supreme 7 Court has recognized the distinction between the first and 8 second clauses of the McCarran-Ferguson Act and clarified that 9 Royal Drug and Pireno dealt with only the second. The Court in 10 U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491 (1993) stated: 11 Both Royal Drug and Pireno . . . involved the scope of the antitrust immunity located in the second clause of § 2(b). We deal here with the first clause, which is not so narrowly circumscribed. The language of § 2(b) is unambiguous: The first clause commits laws “enacted ... for the purpose of regulating the business of insurance” to the States, while the second clause exempts only “the business of insurance” itself from the antitrust laws. To equate laws “enacted ... for the purpose of regulating the business of insurance” with the “business of insurance” itself . . . would be to read words out of the statute. This we refuse to do. 12 13 14 15 16 17 18 19 Fabe, 508 U.S. at 504. VSP’s reliance on Royal Drug and Pireno is misplaced given 20 the Supreme Court’s statement in Fabe. Additionally, Fox can 21 likely show that even if § 1300.71.38 does not directly regulate 22 the relationship between the insurer and policyholders, it 23 indirectly regulates that relationship because the insurer’s 24 relationship with the provider is integral to the insurer’s 25 relationship with its policyholders. 26 The Court therefore finds that Fox can likely prove that 27 McCarran-Ferguson reverse-preempts § 1300.71.38 and therefore she 28 is likely to succeed on the merits of her first argument that 9 1 VSP’s dispute resolution process is illegal because it violates 2 this state regulation. 3 4 b. Unconscionability 5 “Like other contracts, [an arbitration agreement] may be 6 invalidated by generally applicable contract defenses such as 7 fraud, duress, or unconscionability.” 8 v. Jackson, 561 U.S. 63, 68 (2010) (internal quotation marks 9 omitted). Rent-A-Center, W., Inc., “[T]he party opposing arbitration bears the burden of 10 proving by a preponderance of the evidence any defense, such as 11 unconscionability.” 12 App. 4th 165, 172 (2015). 13 unconscionable, a litigant must show procedural and substantive 14 unconscionability. 15 present to the same degree.” 16 . . . so that the more substantively oppressive the contract 17 term, the less evidence of procedural unconscionability is 18 required to come to the conclusion that the term is 19 unenforceable, and vice versa.” 20 omitted). 21 22 Serafin v. Balco Prop. Ltd., LLC, 235 Cal. To prove that an agreement is Id. at 178. i. “Both, however, need not be Id. Courts apply “a sliding scale Id. (internal quotation marks Procedural Unconscionability “Procedural unconscionability concerns the manner in which 23 the contract was negotiated and the circumstances of the party at 24 the time.” 25 778, 783 (9th Cir. 2002) (internal quotation marks omitted). 26 “Procedural unconscionability requires either of two factors: 27 oppression or surprise.” 28 Inc., 217 Fed. Appx. 598, 601 (9th Cir. 2007). Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d Net Global Mktg., Inc. v. Dialtone, 10 “Oppression 1 arises from an inequality in bargaining power which results in no 2 real negotiation and an absence of meaningful choice.” 3 “Surprise” arises when “the allegedly unconscionable provision is 4 hidden within a prolix printed form.” 5 227 Cal. App. 4th 524, 535 (2014). 6 oppression and surprise-are present in VSP’s FHP. 7 Id. Von Nothdurft v. Steck, Fox claims that both factorsMot. at 16. In determining oppression, courts consider whether the 8 stronger party drafted the contract and whether the weaker party 9 could negotiate the contract. Pokorny v. Quixtar, Inc., 601 10 F.3d 987, 996 (9th Cir. 2010). 11 unconscionable under California law if it is ‘a standardized 12 contract, drafted by the party of superior bargaining strength, 13 that relegates to the subscribing party only the opportunity to 14 adhere to the contract or reject it.’” 15 contracts often are procedurally oppressive, this is not always 16 the case.” 17 1305, 1320 (2005). 18 stated that “the adhesive nature of a contract, without more, 19 would give rise to a low degree of procedural unconscionability 20 at most.” 21 (9th Cir. Feb. 3, 2017). 22 whether there are other indications of oppression or surprise” 23 that create procedural unconscionability. 24 “[A] contract is procedurally Id. “Although adhesion Morris v. Redwood Empire Bancorp, 128 Cal. App. 4th Additionally, the Ninth Circuit has recently Poublon v. C.H. Robinson Co., 2017 WL 461099, at *5 So, a court must also “question Id. Fox first argues that the FHP is oppressive because “[t]here 25 is no negotiation in this contract—it is drafted by VSP, mailed 26 to the doctor, she is told to sign it and return it, or lose her 27 VSP status.” 28 that “[s]he ha[d] no meaningful choice but to do as VSP Mot. at 16 (emphasis in original). 11 Fox contends 1 instruct[ed] or lose her VSP contract, and potentially her 2 livelihood given the overwhelming size of VSP and the number of 3 people they insure, including about 40-50% of the patients in Dr. 4 Fox’s practice.” 5 Id. (emphasis in original). VSP responds that “at least as early as 2010, each of 6 Plaintiff’s three successive NDAs clearly explained, with a bold 7 heading, the two-step FHP at issue.” 8 argues that the NDA is not an adhesion contract because Fox had 9 “ample time to review the NDA . . . and could have, but did not, Opp’n at 2. VSP also 10 obtain a copy of the FHP prior to signing the NDA.” 11 VSP emphasizes that Fox’s “claim that she did not have the 12 opportunity to negotiate is pure speculation, because she did not 13 even try,” and other doctors have proposed changes to the NDA. 14 Id. Id. at 16. 15 VSP provides no authority supporting its claim that a 16 contract is not unconscionable if a party has previously seen or 17 signed a similar contract. 18 evidence of any other doctors who have negotiated with VSP 19 concerning the terms of the NDA or FHP or whether VSP has ever 20 accepted any proposed changes to the NDA or FHP. 21 not simply reject VSP’s contract because VSP dominates the vision 22 insurance market. 23 have lost the 40-50% of her customers that VSP insured. 24 NDA’s “take-it-or-leave-it” nature makes it at least somewhat 25 procedurally unconscionable, but that alone does not render the 26 dispute resolution provision in the NDA unenforceable. 27 2017 WL 461099, at *5. 28 whether the NDA or FHP contains additional oppression or Additionally, VSP provides no Also, Fox could If Fox had rejected VSP’s contract, she would The Poublon, The Court therefore turns its focus to 12 1 2 surprise. The Ninth Circuit has held that an arbitration agreement 3 contained surprise when the plaintiff “did not sign the 4 arbitration agreement (it was incorporated by reference).” 5 Newton v. Am. Debt Servs., Inc., 549 F. App’x 692, 694 (9th Cir. 6 2013); see also Pokorny, 601 F.3d at 997 (finding an arbitration 7 agreement procedurally unconscionable in part because the 8 defendant “failed to attach a copy of the Rules of Conduct, 9 containing the full description of the non-binding conciliation 10 and binding arbitration processes, to the registration forms 11 containing the Agreement to Arbitrate”). 12 reasoned the plaintiffs “were not even given a fair opportunity 13 to review the full nature and extent of the non-binding 14 conciliation and binding arbitration processes to which they 15 would be bound before they signed the registration agreements.” 16 Pokorny, 601 F.3d at 997. 17 procedural unconscionability where the defendant “merely 18 referenc[ed] the . . . arbitration rules, and [did] not attach[] 19 those rules to the contract for the customer to review. The 20 customer [had] to go to another source to find out the full 21 import of what she [wa]s about to sign.” 22 Cal. App. 4th 1402, 1406 (2003). 23 The Pokorny court Additionally, a California court found Harper v. Ultimo, 113 Fox argues that the FHP is a “single-spaced 16-page legal 24 contract, likely lawyer-prepared, and provided to an optometrist 25 with no business or legal education whatsoever.” 26 Fox contends that the NDA does not draw attention to the 27 arbitration provision or require the provider to initial it. 28 Fox also contends that “the failure to provide or attach the fair 13 Mot. at 16. Id. 1 2 hearing procedure” to the NDA constitutes surprise. Reply at 10. Like the plaintiffs in Harper and Pokorny, Fox did not have 3 a “fair opportunity” to review the FHP before signing the NDA 4 because VSP did not attach the FHP to the NDA. 5 although the Ninth Circuit found in Poublon that the employment 6 contract that incorporated an arbitration provision by reference 7 but did not attach a copy was not procedurally unconscionable, 8 the NDA differs from the contract in Poublon because there the 9 contract indicated that the arbitration procedure was available Additionally, 10 on the company’s intranet. 11 instructs providers such as Fox how to obtain the FHP only in the 12 FHP itself—the NDA, however, contains no instructions on how to 13 obtain the FHP. 14 Poublon, 2017 WL 461009, at *1. VSP The Court finds that Fox has sufficiently demonstrated a 15 likelihood of success on the merits of her procedural 16 unconscionability argument. The Court, therefore, next addresses 17 the parties’ arguments regarding the substantive 18 unconscionability of the FHP. 19 20 ii. Substantive Unconscionability Substantive unconscionability focuses on the results and 21 outcomes of contracts. 22 Servs., Inc., 24 Cal. 4th 83, 114 (2000). 23 substantively unconscionable if it creates “overly harsh” or 24 “one-sided” results. 25 consideration when assessing substantive unconscionability.” 26 Pokorny, 601 F.3d at 997. 27 28 Armendariz v. Found. Health Psychcare Id. A contract is “[M]utuality is the ‘paramount’ Fox argues several FHP provisions render the contract substantively unconscionable. 14 1 Pre-Appeal Informal Discussion: The FHP states: 2 Within ten (10) days of receipt of a Notice from VSP, ND shall contact VSP at the number stated in the Notice to discuss the findings and allegations set forth in the Notice in a good faith effort to resolve the dispute without the need for a Hearing. If the parties are unable to reach a resolution of the dispute, ND may then request a Hearing. 3 4 5 6 7 FHP at 5. Fox argues “[t]his process is just like” the process in 8 Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267 9 (2004). In Nyulassy, the court held that an employment 10 agreement requiring an employee “to submit to discussions with 11 his supervisors in advance of, and as a condition precedent to, 12 having his dispute resolved through binding arbitration” was 13 substantively unconscionable. 14 15 16 17 18 Id. at 1282. The court stated: [w]hile on its face, this provision may present a laudable mechanism for resolving employment disputes informally, it connotes a less benign goal. Given the unilateral nature of the arbitration agreement, requiring plaintiff to submit to an employercontrolled dispute resolution mechanism (i.e., one without a neutral mediator) suggests that defendant would receive a “free peek” at plaintiff's case, thereby obtaining an advantage if and when plaintiff were to later demand arbitration. 19 20 21 Id. at 1282-83. The Pokorny court also analyzed an arbitration agreement 22 requiring an individual to engage in “Informal and Formal 23 Conciliation prior to arbitration.” 24 The court stated that “the non-binding conciliation process 25 amounts to little more than an exploratory evidentiary hearing 26 for [the defendant].” 27 28 Pokorny, 601 F.3d at 998. Id. at 999. VSP argues that its initial discussion is mutual because the doctor also gets a “free peek” into VSP’s claims. 15 Opp’n at 1 18. 2 from the procedure in Nyulassy, which required the employee to 3 “resolve [his] [dispute] through discussions within successive 4 levels of my supervisory chain of command, until the [dispute] 5 [wa]s resolved.” 6 1273 n.4). 7 indeed differs from the requirement in Nyulassy, the Nyulassy 8 court’s concern over that provision exists here too: Fox must 9 “submit to an employer-controlled dispute resolution mechanism VSP also contends that its pre-appeal requirement differs Id. (quoting Nyulassy, 120 Cal. App. 4th at Although VSP’s pre-appeal discussion requirement 10 . . . 11 at 1283. 12 requires the pre-appeal meeting before beginning the next step 13 in the appeal process. 14 does not support VSP’s argument that the informal meeting is 15 mutual—nothing in the FHP requires VSP to provide any 16 information to the ND. 17 without a neutral mediator.” Nyulassy, 120 Cal. App. 4th Like the provisions in Pokorny and Nyulassy, the FHP And the pre-appeal provision’s language The Court finds Fox’s arguments on her claim that the pre- 18 appeal informal discussion requirement is substantively 19 unconscionable more persuasive than VSP’s, although the Court 20 recognizes that this case is at a very early stage of the 21 litigation and all the evidence with respect to this issue has 22 yet to be presented by the parties. 23 24 25 26 27 28 Confidentiality Provision: The FHP contains a confidentiality provision that states: All facts, records, data and information acquired in preparation for a Hearing or during the course of a Hearing or Arbitration hereunder shall be used and maintained in strict confidence and shall not be disclosed to any third parties, but may be used by the parties to the extent necessary to carry out the purposes of any final action(s), decision(s), and/or 16 1 2 3 awards rendered. This confidential information shall be subject to subpoena or discovery as may be required by law. These confidentiality provisions shall survive final actions, decisions, awards and termination of the NDA. 4 FHP at 1. 5 Relying on Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003) and 6 Ingalls v. Spotify USA, Inc., 2016 WL 6679561, at *1 (Nov. 14, 7 2016 N.D. Cal), Fox argues the FHP’s confidentiality requirement 8 also renders the FHP substantively unconscionable. Mot. at 20. 9 Ting states: 10 11 12 13 14 15 16 17 Although facially neutral, confidentiality provisions usually favor companies over individuals. . . AT&T has placed itself in a far superior legal posture by ensuring that none of its potential opponents have access to precedent while, at the same time, AT&T accumulates a wealth of knowledge on how to negotiate the terms of its own unilaterally crafted contract. Further, the unavailability of arbitral decisions may prevent potential plaintiffs from obtaining the information needed to build a case of intentional misconduct or unlawful discrimination against AT&T. For these reasons, we hold that the district court did not err in finding the secrecy provision unconscionable. 18 Ting, 319 F.3d at 1151–52. Ingalls also found that a 19 confidentiality provision in an arbitration contract contributed 20 to the agreement’s unconscionability. Ingalls, 2016 WL 6679561, 21 at *7. Ingalls emphasized that “it [wa]s the pervasiveness of 22 unconscionability, not any one source of it” that rendered the 23 agreement unconscionable. Ingalls, 2016 WL 6679561, at *6. 24 The Pokorny court also found a confidentiality provision 25 substantively unconscionable because “while handicapping the 26 Plaintiffs’ ability to investigate their claims and engage in 27 meaningful discovery, the confidentiality provision does nothing 28 17 1 to prevent [the defendant] from using its continuous involvement 2 in the [dispute resolution] process to accumulate a ‘wealth of 3 knowledge’ on how to arbitrate future claims.” 4 F.3d at 1002 (quoting Ting, 319 F.3d at 1152). Pokorny, 601 5 As pointed out by VSP, the Ninth Circuit has recently 6 called Pokorny and Ting into question regarding their analyses 7 of confidentiality provisions. VSP Second Supp. Brief at 2-3, 8 ECF No. 26. 9 and Ting “did not rely on California law.” In Poublon, the Ninth Circuit stated that Pokorny Poublon, 2017 WL 10 461099, at *9. 11 court decided Sanchez v. CarMax Auto Superstores Cal. LLC, 224 12 Cal. App. 4th 398 (2014). In Sanchez, the Court found “nothing 13 unreasonable or prejudicial” about “a secrecy provision with 14 respect to the parties themselves.” 15 at 408. 16 Sanchez) emphasized that “[n]ow that we have available data 17 establishing what state law is regarding a closely similar 18 confidentiality provision, we are bound to apply it, even though 19 the state rule may have departed from prior decisions of federal 20 courts.” 21 marks omitted). 22 Post Pokorny and Ting, a California appellate Sanchez, 224 Cal. App. 4th The Ninth Circuit decision in Poublon (which was post Poublon, 2017 WL 461099, at *9 (internal quotation The confidentiality provisions in Poublon and Sanchez 23 included an exception to the confidentiality requirement, if the 24 “parties agree[d] otherwise.” 25 Sanchez, 224 Cal. App. 4th at 408. 26 provision however does not provide such an exception. 27 FHP confidentiality provision “survives final actions . . . and 28 termination of the NDA.” Poublon, 2017 WL 461099, at *7; VSP’s confidentiality Simply put, the scope of the 18 Also, the 1 confidentiality provision in the FHP exceeds the scope of the 2 confidentiality provisions in Poublon and Sanchez. 3 VSP argues that Ting and Ingalls do not apply because the 4 confidentiality provision here does not present the same 5 problems as those provisions in Ingalls and Ting because “[e]ach 6 dispute is specific to the actions of the doctor, not a repeat 7 challenge to the same contractual provision.” 8 VSP’s argument ignores the fact that VSP might discipline 9 doctors across the country for the same actions. Opp’n at 20. But With the 10 confidentiality provision in place, Fox does not have access to 11 any information or any precedents set in cases involving other 12 doctors who have gone through the same dispute resolution 13 process. 14 resolution proceedings with providers and therefore has access 15 to information and precedents set in other hearings. 16 precisely the concern the Ninth Circuit expressed in Pokorny. 17 Poublon and Sanchez do not undermine those concerns because they 18 addressed narrower confidentiality provisions than the one here. 19 Thus VSP’s reliance on these two post Pokorny cases is not 20 enough to overcome Fox’s arguments concerning the 21 unconscionability of this confidentiality provision. 22 VSP, on the other hand, participates in all dispute This is Settlement Provision: Fox’s third argument in support of 23 her substantive unconscionability claim focuses on the FHP 24 settlement provision which provides: 25 26 27 28 After requesting Arbitration but before selection of an Arbitrator, Claimant shall propose final and binding terms of settlement (“Settlement Proposal”) to the other party (“Respondent”). Respondent shall accept or reject the Settlement Proposal. If the Settlement Proposal is accepted by Respondent, the 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 parties shall proceed to execute the terms of the settlement, forthwith. If the settlement terms cannot be performed in three (3) days of acceptance, the parties shall reduce the settlement to a writing and sign the settlement agreement. If Respondent rejects the Settlement Proposal, the case shall proceed to Arbitration. If Claimant obtains an arbitration award at Arbitration that is greater than the Settlement Proposal, the Claimant shall be deemed the prevailing party for purposes of an award of arbitration costs, plus an award of attorneys’ fees, which fees shall not exceed $15,000. (California Civil Code Section 1717 shall not apply for purposes of determining the prevailing party.) If the Arbitrator’s Award at Arbitration is less than the Settlement Proposal, Respondent shall be deemed the prevailing party for purposes of an award of arbitration costs, plus an award of attorneys’ fees, which fees shall not exceed $15,000. If Claimant fails or refuses to make a Settlement Proposal pursuant to this Section, Claimant shall be deemed to have waived his/her/its right to recovery of any attorney fees or arbitration costs regardless of the terms contained in the NDA or the fact that the Arbitration Award awards Claimant greater relief than Respondent. FHP at 13-14. Fox argues that because VSP is a “vastly more powerful 16 entity financially, and has its own in-house litigation 17 attorneys, it incurs no actual out-of-pocket legal expenses in 18 arbitration.” 19 doctor, on the other hand, incurs actual attorneys’ fees, and is 20 limited in the amount of those fees she can recover even if she 21 prevails completely.” 22 not only a complete surprise, but profoundly favors VSP and 23 works, along with the seriously inconvenient forum, to chill and 24 create a disincentive for any provider to challenge a fair 25 hearing award through arbitration.” 26 Mot. at 21. Id. Fox further contends that “[t]he Fox argues that “[t]his procedure is Id. A court may find a fee-shifting provision in an arbitration 27 agreement substantively unconscionable if it creates the “risk 28 of [plaintiffs] incurring greater costs than they would bear if 20 1 they were to litigate their claims in federal court.” 2 601 F.3d at 1004. 3 “Settlement Proposal” before proceeding to arbitration. 4 13. 5 of any attorney fees or arbitration costs” regardless of the 6 arbitration’s outcome. 7 arbitration and receives an award from VSP, she would still have 8 to pay VSP’s arbitration fees and costs if the arbitration award 9 did not exceed any settlement offered by VSP. Pokorny, The FHP requires a provider to submit a FHP at If the provider does not, she waives her “right to recovery Id. at 14. Also, even if Fox “wins” at These rules would 10 not apply if Fox could simply litigate her claim in court. 11 settlement provision, like the fee-shifting provision in 12 Pokorny, exposes Fox to an increased risk of bearing greater 13 costs than if she brought the claim in court, therefore rending 14 the provision substantively unconscionable. 15 The Fox argues that the FHP is substantively unconscionable for 16 at least four more reasons. 17 reasons because, for purposes of her motion for a preliminary 18 injunction, Fox has shown that she is likely to prevail on the 19 issue of whether the FHP is substantively unconscionable. 20 Court emphasizes however that its Order herein is not a final 21 decision on the merits of any claim at issue in this case. 22 Rather, the Court has simply concluded at this early stage of 23 the litigation that Fox has satisfied her likelihood of success 24 burden on this issue. 25 26 The Court need not address these The iii. Severability “Under California law, a court has discretion to either 27 sever an unconscionable provision from an agreement, or refuse 28 to enforce the agreement in its entirety.” 21 Pokorny, 603 F.3d at 1 1005. 2 the central purpose of the contract is tainted with illegality 3 or the illegality is collateral to its main purpose.” 4 (internal quotation marks omitted). 5 unconscionable portions of an arbitration agreement if the 6 agreement is “simply too tainted to be saved through minor 7 adjustments.” 8 9 “In exercising this discretion, courts look to whether Id. A court may refuse to sever Id. VSP argues the Court should sever any unconscionable provisions and enforce the rest of the FHP. Opp’n at 21. Fox 10 can likely show the pre-appeal informal discussion, the 11 confidentiality, and the settlement provisions are 12 unconscionable. 13 unconscionability permeates this agreement, so much so that 14 severing certain clauses would not cure the illegality. 15 Court finds that the offending provisions are likely not 16 severable and denies VSP’s request. 17 18 2. Fox also likely can prove that The Irreparable Harm Litigants “may not obtain a preliminary injunction unless 19 they can show that irreparable harm is likely to result in the 20 absence of the injunction.” 21 plaintiff must do more than merely allege imminent harm 22 sufficient to establish standing; a plaintiff must demonstrate 23 immediate threatened injury as a prerequisite to preliminary 24 injunctive relief.” 25 Baldrige, 844 F.2d 668 (9th Cir. 1988). 26 not normally considered irreparable.” 27 Comm’n v. Nat’l Football League, 634 F.2d 1197, 1202 (9th Cir. 28 1980). Cottrell, 632 F.3d at 1135. “A Caribbean Marine Serv. Co., Inc. v. 22 “[M]onetary injury is L.A. Mem’l Coliseum 1 Fox argues that “California law promises and requires, a 2 ‘fair, fast and cost-effective’ process for resolving these 3 kinds of disputes, and it singles out arbitration as being 4 prohibited, because it is not a fast or cost-effective way to 5 resolve provider billing disputes.” 6 Mot. at 3. Courts disagree on “whether being subjected to incur the 7 expense associated with an otherwise non-arbitrable dispute 8 constitutes ‘irreparable injury’ in and of itself, or whether 9 the party opposing the arbitration must demonstrate that it will 10 suffer unrecoverable economic damages.” 11 LLC v. Couch, 134 F. Supp. 3d 1215, 1235 (E.D. Cal. 2015). 12 Ninth Circuit has indicated, however, that “irreparable injury 13 presumptively . . . exist[s] if a party is required to expend 14 resources participating in an arbitration in which it has no 15 duty to participate.” 16 v. Wholesale & Retail Food Distrib., Teamsters Local 63, 849 17 F.2d 1236, 1241 n. 3 (9th Cir. 1988)). 18 district court has found irreparable harm in requiring an 19 individual to engage in a likely unenforceable arbitration 20 agreement, stating that “a party should not be required to incur 21 the legal expense of opposing or seeking to vacate an 22 arbitration award that should never have been rendered in the 23 first place.” 24 (C.D. Cal. Jul. 22, 2003). 25 by VSP that likely violated a Kentucky law, a federal court 26 stated the provider “has a right to the benefits of statutory 27 compliance . . . [i]njunctive relief is an appropriate remedy 28 where one clearly threatens to violate the provisions of a state Morgan Stanley & Co., The Id. (citing LAWI/CSA Consolidators, Inc. Another California World Grp. Sec. v. Tiu, 2003 WL 26119461, at *7 Additionally, as to an action taken 23 1 statute.” 2 Ins. Co., 2005 WL 2739160, at *2 (W.D. Ky. Oct. 21, 2005). 3 Dr. Mark Lynn & Assocs. PLLC v. Vision Serv. Plan Based on these authorities, the Court finds that Plaintiff 4 has established that she will suffer irreparable harm if she 5 must participate in a dispute resolution process which the Court 6 may later find illegal. 7 3. Balance of Equities 8 Fox argues that “while [she] faces the substantial 9 inconvenience and expense of traveling across the U.S. and 10 preparing for a hearing that may well be illegal, and which 11 California does not want her to engage in, VSP faces no harm by 12 delaying the hearing until it is determined if VSP’s process is 13 legal and enforceable.” Mot. at 23. 14 VSP argues that the balance of equities tips in VSP’s favor 15 because “[i]ssuance of a preliminary injunction in this case is 16 nearly certain to inhibit VSP’s ability to engage in the 17 mandatory dispute resolution process that has been approved by 18 the California Department of Managed Health Care, and that to 19 which VSP’s Network Doctors have agreed.” 20 Opp’n at 24. Fox makes the stronger argument here because by granting 21 the preliminary injunction, the Court only temporarily prevents 22 the dispute resolution process from proceeding while the Court 23 determines the legality of that process. 24 will not harm VSP: VSP will still have the opportunity to 25 implement its dispute resolution process if the Court finds that 26 process legal. 27 preliminary injunction, Fox will have to expend considerable 28 time and resources to engage in a potentially illegal dispute Granting an injunction But if the Court denies the motion for 24 1 resolution process. 2 4. Public Interest 3 When an injunction’s reach is “narrow, limited only to the 4 parties, and has no impact on non-parties, the public interest 5 will be at most a neutral factor in the analysis rather than one 6 that favors granting or denying the preliminary injunction.” 7 Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138–39 (9th Cir. 8 2009) (citations omitted). 9 injunction reaches beyond the parties, carrying with it a “If, however, the impact of an 10 potential for public consequences, the public interest will be 11 relevant to whether the district court grants the preliminary 12 injunction.” 13 Id. Fox argues that the public interest element is neutral 14 because this case involves a private dispute between Dr. Fox and 15 VSP. 16 public interest, Fox argues that participation in the dispute 17 resolution process will preclude her from treating her patients 18 for several days. Mot. at 23. Yet, to the extent this case involves the Id. 19 VSP argues that “issuance of an injunction will likely 20 disrupt the ADR mechanism developed for disputes about the 21 imposition of discipline [and] likely result in increased costs 22 to policyholders as VSP, a not-for-profit entity, faces 23 increased litigation costs which it must pass on to its 24 insureds.” 25 Opp’n at 25. The Court finds the public interest element to be neutral 26 because an injunction in this dispute between VSP and Fox will 27 not likely have the drastic effects VSP suggests. 28 25 1 5. Bond 2 Fox argues that the Court should not require a bond because 3 VSP will not suffer any monetary injury if the Court enjoins the 4 dispute resolution hearing. 5 a bond, and the Court does not require a bond for this 6 injunction. Mot. at 25. VSP has not requested 7 8 III. ORDER 9 For the reasons set forth above, the Court GRANTS Fox’s 10 motion for preliminary injunction. 11 IT IS SO ORDERED. 12 Dated: February 23, 2017 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 26

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