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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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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PATRICIA FOX, O.D.,

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2:16-cv-2456-JAM-DB

Plaintiff,

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No.

v.
VISION SERVICE PLAN; DOES 110, inclusive,

ORDER GRANTING PLAINTIFF’S
MOTION FOR PRELIMINARY
INJUNCTION

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Defendant.
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Plaintiff Patricia Fox, O.D. (“Fox”) filed suit in state

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court to prevent Defendant Vision Service Plan (“VSP”) from

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enforcing its audit against Fox “due to the failure to provide

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Fox with a lawful dispute resolution mechanism.”

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41, ECF No. 1-1.

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1.

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which VSP opposed, ECF No. 18.

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motion for preliminary injunction on February 7, 2017.

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21.

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Each party filed a brief, ECF Nos. 22, 23, which the Court has

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considered.

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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

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ECF No. 24.

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The Court gave VSP the opportunity to file a supplemental brief

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on a case Fox cited only in her reply.

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considered VSP’s supplemental brief on that issue.

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sets forth in greater detail the bases for the Court’s decision

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to grant Fox’s motion for preliminary injunction.

Id.

The Court has
This Order

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I.

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FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

Fox, a Massachusetts licensed optometrist, “was a contracted
doctor” with VSP.

Compl. ¶ 1.

VSP, a non-profit California

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corporation with its principal place of business in Rancho

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Cordova, California, provides vision insurance plans to millions

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of people in the United States.

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15.

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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 . . .

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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 . . .

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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
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document to the NDA, see Fox Decl. ¶ 5, Exh. 3 (“FHP”), ECF No.

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16-2.

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obtain the FHP.

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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

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results.

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letter, VSP demanded “repayment of improper claims submitted to

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VSP” and repayment for the cost of the audit.

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The letter required Fox to pay $444,147 in “restitution” and

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terminated Fox’s NDA.

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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

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VSP dispute resolution process.”

Compl. ¶ 35.

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arbitration for November 4, 2016.

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hearing to February 10, 2017.

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No. 12.

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dispute resolution hearing, and this Order sets forth the Court’s

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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

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II.

OPINION

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A.

Legal Standard

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A court may award a preliminary injunction—an “extraordinary

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remedy”—only “upon a clear showing that the plaintiff is entitled

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to such relief.”

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U.S. 7, 22 (2008).

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plaintiff must show: (1) she will likely succeed on the merits,

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(2) she will suffer irreparable harm without preliminary relief,

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(3) the balance of equities tips in her favor, and (4) an

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injunction is in the public interest.

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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

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Boardman v. Pac. Seafood

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U.S. at 20).

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require a likelihood of success on the merits.

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Rockies v. Cottrell, 632 F.3d 1127, 1131–32 (9th Cir. 2011).

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“Rather, serious questions going to the merits and a hardship

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balance that tips sharply toward the plaintiff can support

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issuance of an injunction, assuming the other two elements of the

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Winter test are also met.”

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F.3d 1073, 1085 (9th Cir. 2014) (internal quotation marks

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omitted).

Issuance of an injunction does not absolutely
All. for the Wild

Drakes Bay Oyster Co. v. Jewell, 747

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Fox argues the Court should grant her motion for preliminary

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injunction to preserve the status quo “until the Court determines

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if the dispute resolution process is legal and enforceable.”

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Mot. at 2.

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B.

Analysis
1.

Likelihood of Success on the Merits

Fox contends she can likely prove that VSP’s dispute

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resolution process is unenforceable for two reasons: (1) it

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violates California Code of Regulations § 1300.71.38; and (2) it

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is unconscionable.

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a.

Mot. at 2.
Violation of § 1300.71.38

California Health and Safety Code § 1367 states that “[a]ll

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contracts with providers shall contain provisions requiring a

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fast, fair, and cost-effective dispute resolution mechanism

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under which providers may submit disputes to the plan.”

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Health & Safety Code § 1367(h)(1).

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Cal.

The California Code of Regulations implements § 1367.

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Section 1300.71.38 of the regulations further defines the phrase

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“fast, fair, and cost-effective dispute resolution mechanism,”
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explaining that “[a]rbitration shall not be deemed a provider

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dispute or a provider dispute resolution mechanism.”

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Regs. tit. 28, § 1300.71.38.

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Cal. Code

The Federal Arbitration Act (“FAA”) conflicts with

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§ 1300.71.38’s ban on using arbitration as a dispute resolution

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mechanism.

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contract “shall be valid, irrevocable, and enforceable, save

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upon such grounds as exist at law or in equity for the

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revocation of any contract.”

The FAA states that an arbitration provision in a

9 U.S.C. § 2.

The FAA preempts

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contrary state law, so a court cannot apply “any state statute

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that invalidates an arbitration agreement.”

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Corinthian Colleges, Inc., 733 F.3d 928, 932 (9th Cir. 2013).

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Fox concedes that the FAA preempts § 1300.71.38, but she argues

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the McCarran-Ferguson Act (“McCarran-Ferguson”) “reverse-

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preempts” § 1300.71.38.

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Ferguson v.

Mot. at 7.

VSP contends § 1300.71.38 does not invalidate the FHP for

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three reasons: (1) § 1300.71.38 does not apply; (2) the FHP does

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not violate § 1300.71.38; and (3) McCarran-Ferguson does not

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reverse-preempt § 1300.71.38.

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i.

Opp’n at 1.

Whether § 1300.71.38 Applies

VSP argues § 1300.71.38 does not apply to its dispute with

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Fox because Ҥ 1300.71.38 only applies to a defined subspecies

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of ‘provider disputes.’”

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defines “Contracted Provider Dispute” as

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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.
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Cal. Code Regs. Tit. 28, § 1300.71.38(a)(1).

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VSP argues “[t]he definition of ‘provider dispute’ does not

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include appeal of an adverse action taken or discipline imposed

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as a result of a fraud investigation.”

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that “the FHP expressly clarifies that the FHP does not apply to

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the very disputes Section 1300.71.38 applies to, for which a

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separate ‘fair, fast, and cost-effective resolution mechanism’

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has been established.”

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it “does not apply to ordinary provider Claim Disputes.”

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Id.

Opp’n at 5.

VSP adds

The FHP does indeed indicate that
FHP at

2.

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Fox replies that California law defines “Contracted

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Provider Dispute,” not VSP.

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fact that VSP’s demand for reimbursement followed a “fraud

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investigation” does not make § 1300.71.38 inapplicable because

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the definition of “Contracted Provider Dispute” “says nothing

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about the nature of the investigation that led to the dispute.”

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Id.

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Reply at 1.

Fox argues that the

Fox has demonstrated a likelihood of success on this issue.

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First, the facts of this case track the plain language of the

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definition of a “Contracted Provider Dispute”: Fox, a

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“contracted provider,” sent “written notice” to VSP “seeking

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resolution” of VSP’s demand to pay VSP over $400,000 in

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restitution.

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Fox Decl. ¶¶ 2, 9, 12.

Second, VSP provides no case law to support its argument

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that the fact that the dispute arose from a fraud investigation

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makes § 1300.71.38 inapplicable.

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authority to support the argument that the FHP falls outside

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§ 1300.71.38’s purview because the FHP states that it does not

VSP also fails to cite any

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apply to “ordinary dispute claims.”

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Court concludes that Fox will likely succeed in showing that

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§ 1300.71.38 applies to this dispute between the parties.

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ii.

For these reasons, the

Whether the FHP Violates § 1300.71.38

VSP next argues that, even if § 1300.71.38 applies, the FHP

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does not violate the regulation.

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the first step in the FHP cannot violate § 1300.71.38 because it

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is not arbitration.

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Renaissance Hotel Associates, 50 Cal. App. 4th 676 (1996), which

Id.

Opp’n at 6.

VSP contends that

VSP relies on Cheng-Canindin v.

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states “a dispute resolution procedure is not an arbitration

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unless there is a third party decision maker, a final and

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binding decision, and a mechanism to assure a minimum level of

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impartiality with respect to the rendering of that decision.”

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Opp’n at 6 (quoting Cheng, 50 Cal. App. 4th at 687-88).

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maintains that “[t]he fact that the hearing procedure is non-

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binding and subject to review is dispositive of the fact that

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the hearing procedure is not arbitration, and thus does not fall

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within the ambit of Section 1300.71.38.”

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VSP

Id.

Fox responds that the Ninth Circuit has held that

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“arbitration need not be binding to fall within the scope of the

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[FAA]”.

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144 F.3d 1205, 1209 (9th Cir. 1998)). The Court finds that VSP’s

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argument that the FHP’s first step is not arbitration because it

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is non-binding fails because it contradicts the Ninth Circuit’s

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statement in Wolsey.

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Reply at 3 (quoting Wolsey, Ltd. v. Foodmaker, Inc.,

iii. Whether McCarran-Ferguson ReversePreempts § 1300.71.38

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McCarran-Ferguson states that “[n]o Act of Congress shall
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be construed to invalidate, impair, or supersede any law enacted

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by any State for the purpose of regulating the business of

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insurance, or which imposes a fee or tax upon such business,

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unless such Act specifically relates to the business of

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insurance.”

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“specifically relate[] to the business of insurance.”

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v. PacifiCare Behavioral Health of California, Inc., 93 Cal.

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App. 4th 139, 149 (2001).

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whether California enacted § 1300.71.38 “for the purpose of

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15 U.S.C. § 1012(b).

The FAA does not
See Smith

The Court must therefore determine

regulating the business of insurance.”

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Fox argues that § 1300.71.38 regulates the “business of

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insurance” because it “regulates a core promise made by the plan

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to the insured in the insurance contract: the promise to pay a

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contracted provider directly on behalf of the insured.”

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12.

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regulate the relationship between the insurer and the insured,

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it surely does so indirectly . . . because the insurer-provider

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contract is a core promise made by the insurer to its insureds.”

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Id.

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payment practices ultimately, even if indirectly, furthers

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significantly the interests of VSP’s members by ensuring that

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the doctors the members go to are paid fairly, and as a result

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will become and will remain contracted with VSP as in-network

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providers.”

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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

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§ 1300.71.38 because McCarran-Ferguson focuses on “the

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relationship between the insurer and its policyholders,” not the

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relationship between the insurer and the provider.
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Opp’n at 7.

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VSP contends that “[h]ere, just as in Royal Drug and Pireno, the

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FHP at issue . . . has nothing to do with the relationship

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between the insurer and the insured, but rather is between the

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insurer and medical providers.”

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Id. at 10.

Fox responds that Royal Drug and Pireno dealt only with

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McCarran-Ferguson’s second clause.

Reply at 4.

The Supreme

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Court has recognized the distinction between the first and

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second clauses of the McCarran-Ferguson Act and clarified that

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Royal Drug and Pireno dealt with only the second.

The Court in

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U.S. Dep’t of Treasury v. Fabe, 508 U.S. 491 (1993) stated:

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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.

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Fabe, 508 U.S. at 504.
VSP’s reliance on Royal Drug and Pireno is misplaced given

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the Supreme Court’s statement in Fabe.

Additionally, Fox can

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likely show that even if § 1300.71.38 does not directly regulate

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the relationship between the insurer and policyholders, it

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indirectly regulates that relationship because the insurer’s

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relationship with the provider is integral to the insurer’s

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relationship with its policyholders.

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The Court therefore finds that Fox can likely prove that

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McCarran-Ferguson reverse-preempts § 1300.71.38 and therefore she

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is likely to succeed on the merits of her first argument that
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VSP’s dispute resolution process is illegal because it violates

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this state regulation.

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b.

Unconscionability

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“Like other contracts, [an arbitration agreement] may be

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invalidated by generally applicable contract defenses such as

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fraud, duress, or unconscionability.”

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v. Jackson, 561 U.S. 63, 68 (2010) (internal quotation marks

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omitted).

Rent-A-Center, W., Inc.,

“[T]he party opposing arbitration bears the burden of

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proving by a preponderance of the evidence any defense, such as

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unconscionability.”

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App. 4th 165, 172 (2015).

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unconscionable, a litigant must show procedural and substantive

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unconscionability.

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present to the same degree.”

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. . . so that the more substantively oppressive the contract

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term, the less evidence of procedural unconscionability is

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required to come to the conclusion that the term is

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unenforceable, and vice versa.”

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omitted).

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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

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the contract was negotiated and the circumstances of the party at

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the time.”

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778, 783 (9th Cir. 2002) (internal quotation marks omitted).

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“Procedural unconscionability requires either of two factors:

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oppression or surprise.”

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Inc., 217 Fed. Appx. 598, 601 (9th Cir. 2007).

Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d

Net Global Mktg., Inc. v. Dialtone,

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“Oppression

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arises from an inequality in bargaining power which results in no

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real negotiation and an absence of meaningful choice.”

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“Surprise” arises when “the allegedly unconscionable provision is

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hidden within a prolix printed form.”

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227 Cal. App. 4th 524, 535 (2014).

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oppression and surprise-are present in VSP’s FHP.

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Id.

Von Nothdurft v. Steck,

Fox claims that both factorsMot. at 16.

In determining oppression, courts consider whether the

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stronger party drafted the contract and whether the weaker party

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could negotiate the contract.

Pokorny v. Quixtar, Inc., 601

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F.3d 987, 996 (9th Cir. 2010).

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unconscionable under California law if it is ‘a standardized

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contract, drafted by the party of superior bargaining strength,

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that relegates to the subscribing party only the opportunity to

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adhere to the contract or reject it.’”

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contracts often are procedurally oppressive, this is not always

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the case.”

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1305, 1320 (2005).

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stated that “the adhesive nature of a contract, without more,

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would give rise to a low degree of procedural unconscionability

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at most.”

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(9th Cir. Feb. 3, 2017).

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whether there are other indications of oppression or surprise”

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that create procedural unconscionability.

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“[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

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is no negotiation in this contract—it is drafted by VSP, mailed

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to the doctor, she is told to sign it and return it, or lose her

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VSP status.”

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that “[s]he ha[d] no meaningful choice but to do as VSP

Mot. at 16 (emphasis in original).

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Fox contends

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instruct[ed] or lose her VSP contract, and potentially her

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livelihood given the overwhelming size of VSP and the number of

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people they insure, including about 40-50% of the patients in Dr.

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Fox’s practice.”

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Id. (emphasis in original).

VSP responds that “at least as early as 2010, each of

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Plaintiff’s three successive NDAs clearly explained, with a bold

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heading, the two-step FHP at issue.”

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argues that the NDA is not an adhesion contract because Fox had

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“ample time to review the NDA . . . and could have, but did not,

Opp’n at 2.

VSP also

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obtain a copy of the FHP prior to signing the NDA.”

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VSP emphasizes that Fox’s “claim that she did not have the

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opportunity to negotiate is pure speculation, because she did not

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even try,” and other doctors have proposed changes to the NDA.

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Id.

Id. at 16.

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VSP provides no authority supporting its claim that a

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contract is not unconscionable if a party has previously seen or

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signed a similar contract.

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evidence of any other doctors who have negotiated with VSP

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concerning the terms of the NDA or FHP or whether VSP has ever

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accepted any proposed changes to the NDA or FHP.

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not simply reject VSP’s contract because VSP dominates the vision

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insurance market.

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have lost the 40-50% of her customers that VSP insured.

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NDA’s “take-it-or-leave-it” nature makes it at least somewhat

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procedurally unconscionable, but that alone does not render the

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dispute resolution provision in the NDA unenforceable.

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2017 WL 461099, at *5.

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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

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1
2

surprise.
The Ninth Circuit has held that an arbitration agreement

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contained surprise when the plaintiff “did not sign the

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arbitration agreement (it was incorporated by reference).”

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Newton v. Am. Debt Servs., Inc., 549 F. App’x 692, 694 (9th Cir.

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2013); see also Pokorny, 601 F.3d at 997 (finding an arbitration

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agreement procedurally unconscionable in part because the

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defendant “failed to attach a copy of the Rules of Conduct,

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containing the full description of the non-binding conciliation

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and binding arbitration processes, to the registration forms

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containing the Agreement to Arbitrate”).

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reasoned the plaintiffs “were not even given a fair opportunity

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to review the full nature and extent of the non-binding

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conciliation and binding arbitration processes to which they

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would be bound before they signed the registration agreements.”

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Pokorny, 601 F.3d at 997.

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procedural unconscionability where the defendant “merely

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referenc[ed] the . . . arbitration rules, and [did] not attach[]

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those rules to the contract for the customer to review. The

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customer [had] to go to another source to find out the full

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import of what she [wa]s about to sign.”

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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

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contract, likely lawyer-prepared, and provided to an optometrist

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with no business or legal education whatsoever.”

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Fox contends that the NDA does not draw attention to the

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arbitration provision or require the provider to initial it.

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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

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contract that incorporated an arbitration provision by reference

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but did not attach a copy was not procedurally unconscionable,

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the NDA differs from the contract in Poublon because there the

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contract indicated that the arbitration procedure was available

Additionally,

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on the company’s intranet.

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instructs providers such as Fox how to obtain the FHP only in the

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FHP itself—the NDA, however, contains no instructions on how to

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obtain the FHP.

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Poublon, 2017 WL 461009, at *1.

VSP

The Court finds that Fox has sufficiently demonstrated a

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likelihood of success on the merits of her procedural

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unconscionability argument. The Court, therefore, next addresses

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the parties’ arguments regarding the substantive

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unconscionability of the FHP.

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20

ii.

Substantive Unconscionability

Substantive unconscionability focuses on the results and

21

outcomes of contracts.

22

Servs., Inc., 24 Cal. 4th 83, 114 (2000).

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substantively unconscionable if it creates “overly harsh” or

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“one-sided” results.

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consideration when assessing substantive unconscionability.”

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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.
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1

Pre-Appeal Informal Discussion: The FHP states:

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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.

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4
5
6
7

FHP at 5.
Fox argues “[t]his process is just like” the process in

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Nyulassy v. Lockheed Martin Corp., 120 Cal. App. 4th 1267

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(2004).

In Nyulassy, the court held that an employment

10

agreement requiring an employee “to submit to discussions with

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his supervisors in advance of, and as a condition precedent to,

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having his dispute resolved through binding arbitration” was

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substantively unconscionable.

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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.

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20
21

Id. at 1282-83.
The Pokorny court also analyzed an arbitration agreement

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requiring an individual to engage in “Informal and Formal

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Conciliation prior to arbitration.”

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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
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22
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25
26
27
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26