Opinion
No. C 01-1461 PJH
July 27, 2001
ORDER RE DEFENDANT'S MOTION TO DISMISS
Defendant American Arbitration Association's motion to dismiss came on for hearing on July 25, 2001, before this court, the Honorable Phyllis J. Hamilton presiding. Plaintiff M.H. Alexander appeared by her counsel, James A. Alexander, and the American Arbitration Association appeared by its counsel, Steven Sumnick. Having reviewed the parties' papers and carefully considered the arguments of counsel and the relevant legal authority, and good cause appearing, the court hereby rules as follows.
INTRODUCTION
M.H. Alexander (plaintiff') alleges fraud; violation of the Consumers Legal Remedies Act, California Civil Code § 1770; violation of the Unfair Business Practices Act, California Business Professions Code § 17200; and negligence. Plaintiff claims that defendant American Arbitration Association (the "AAA") violated its internal policy that health care disputes be arbitrated under its health care arbitration rules by arbitrating her dispute with her health insurer, Blue Cross of California ("Blue Cross"), under its commercial rules.
The AAA now moves pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss the entire complaint for failure to state a claim on which relief can be granted. ln the event this court does not dismiss the entire complaint, the AAA moves to dismiss those claims for relief which plaintiff has failed to state a claim. Alternatively, the AAA moves to strike the complaint or parts thereof pursuant to Fed.R.Civ.P. 12(f) and/or for a more definite statement pursuant to Fed.R.Civ.P. 12(e).
BACKGROUND
This action arises out of the administration by the AAA of an arbitration between plaintiff and Blue Cross. In September 1997, plaintiff was examined by Dr. Terence Chen a participating physician in her Blue Cross "Prudent Buyer" plan, for neck pain arising from an auto accident. Subsequently, plaintiff filed complaints with Blue Cross and the California Medical Board alleging that Dr. Chen's examination was inappropriate and sexually motivated. Blue Cross investigated plaintiff's complaint and concluded that Dr. Chen's examination was necessary and appropriate.
In September 1998, plaintiff filed a Demand for Arbitration with the AAA alleging that Blue Cross breached its contract and was negligent in its investigation of Dr. Chen. The Blue Cross "Prudent Buyer" plan under which plaintiff has health insurance included a provision for binding arbitration by the AAA in accordance with its Commercial Rules of Arbitration. On July 1, 1999, the arbitrator found against the plaintiff and issued an arbitration award to Blue Cross.
On July 15, 1999, plaintiff filed a petition in San Francisco Superior Court to vacate the arbitration award. On August 27, 1999, Judge Ronald E. Quidachay denied plaintiff's petition and confirmed the arbitration award in favor of Blue Cross, M.H. Alexander v. Blue Cross, San Francisco Superior Court Case No. 305926. The First District Court of Appeal denied plaintiff's appeal and affirmed the judgment upholding the arbitration award on May 13, 2000, M.H. Alexander v. Blue Cross, San Francisco Superior Court Case No, 304926. Subsequently, plaintiff filed this suit against the AAA.
DISCUSSION
A. Legal Standard
A Rule 12(b)(6) motion to dismiss for failure to state a claim tests the legal sufficiency of the claim or claims stated in the complaint. The court must decide whether the facts alleged, if true, would entitle plaintiff to some form of legal remedy. Unless the answer is unequivocally "no," the motion must be denied. Schwarzer, Tashima Wagstaffe, Federal Civil Procedure Before Trial § 9:187.
A Rule 12(b)(6) dismissal is proper only where there is either a "lack of a cognizable legal theory" or the "absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). A claim should not be dismissed under Rule 12(b)(6) "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45 (1957).
In resolving a Rule 12(b)(6) motion, the court must 1) construe the complaint in the light most favorable to the plaintiff; 2) accept the well-pleaded factual allegations as true; and 3) determine whether plaintiff can prove any set of facts to support a claim that would merit relief. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337 (9th Cir. 1996).
B. AAA's Motion to Dismiss the Entire Complaint
1. Arbitral Immunity
The AAA moves to dismiss plaintiff's entire complaint based on the doctrine of arbitral immunity. The AAA argues that plaintiff's claims for relief are barred because arbitral immunity shields the organization administering the arbitration from any liability for alleged misconduct by the arbitrator.
Plaintiff responds that arbitral immunity does not apply because the AAA engaged in nonjudicial actions. Plaintiff argues that her complaint does not address the arbitrator's conduct, but rather the unfair business practices resulting from the AAA's violation of its health care dispute resolution policy that the health care rules would be followed, not the commercial rules. Plaintiff's argument flows from the premise that the policy operates independently of the arbitration conducted in the instant case.
Plaintiff also argues that arbitral immunity does not bar this claim because the AAA did not have jurisdiction to hear her case in the arbitration proceeding. Plaintiff asserts that the AAA did not receive a knowing and voluntary decision from her agreeing to binding arbitration after the dispute arose.
The doctrine of judicial immunity is applicable to the arbitration process and extends to arbitration associations such as the AAA. Cort v. AAA, 795 F. Supp. 970, 971 (ND. Cal. 1992); Corey v. N.Y.S.E., 691 F.2d 1205, 1211 (6th Cir. 1982); Austern v. Chicago Bd. Options Exch., Inc., 716 F. Supp. 121, 124 (S.D.N.Y. 1989), aff'd, 898 F.2d 882, 886 (2d Cir. 1990), cert denied, 498 U.S. 850 (1990). Courts grant the arbitration process immunity because "the functional comparability of the arbitrator's decision making process and judgments to those of judges . . . generates the same need for independent judgment free from the threat of lawsuits." Cort, 795 F. Supp. at 972. The two-fold goal of arbitral immunity is to "protect arbitrators from suit, and to ensure that there is a body of individuals willing to perform the service." Id. at 973. Consequently, judicial and arbitral immunity can be overcome only where the judge (or arbitrator) is engaged in nonjudicial actions or where the judge's (or arbitrator's) actions are taken in the absence of any jurisdiction. Mireless v. Waco, 502 U.S. 9, 11-12 (1991).
In Cort, the court granted the AAA's motion to dismiss for failure to state a claim, rejecting the plaintiff's argument that the AAA's choice of arbitrators constituted an administrative decision rather than a judicial act. The court held that the acts complained of by plaintiff (spoilation of evidence, breach of contract, and negligence) clearly fell into the category of acts performed during the course of the resolution process, and therefore, came within the scope of arbitral immunity. Id. at 973; see also, Forrester v. White, 484 U.S. 219, 226 (1988). The Sixth Circuit in Corey applied arbitral immunity in holding that the New York Stock Exchange was not liable for alleged misconduct in administering an arbitration between a stockbroker and its customer. Corey, 691 F.2d at 1211. The Eighth Circuit has also held that arbitral immunity protects all acts within the scope of the arbitral process, even when those acts violate the arbitration organization's own rules. Olson v. Nat'l Ass'n of Sec. Dealers, 85 F.3d 381, 383 (8th Cir. 1996) (holding that a sponsoring organization is immune from civil liability for improperly selecting an arbitration panel, even when the selection violates the organization's own rules).
In an argument similar to the argument made by the plaintiff in Cort, plaintiff here attempts to characterize the AAA's activities as nonjudicial acts in order to escape the immunity bar. Plaintiff's complaint arises from the allegedly fraudulent application of the A.AA's policies to her arbitration proceedings, which presumably constitutes the nonjudicial act. The misrepresentations and other violations asserted in plaintiff's complaint all flow from this basic allegation. However, the court finds that the AAA's policy is not independent of the arbitration process given that the policy dictates how the arbitration will proceed. The AAA's policy properly falls within the scope of the arbitration process since plaintiff attacks both the validity of the policy itself and its application to her arbitration dispute. Moreover, the acts complained of by plaintiff — fraud, unfair business practices, and negligence are similar to the allegations in Cort, which were summarily dismissed by the court.
Plaintiff's argument that the AAA lacked jurisdiction over her arbitration dispute also fails. The health insurance contract entered into by plaintiff and Blue Cross required binding pre-dispute arbitration conducted by the AAA in accordance with its commercial rules, which plaintiff does not dispute. Plaintiff ignores this provision when she argues that AAA lacked jurisdiction because no separate agreement was reached after the dispute arose to proceed with binding arbitration. The point of a binding pre-dispute arbitration agreement is so that parties do not have to reach a separate agreement. The provision required plaintiff and Blue Cross to submit to the AAA's jurisdiction when a dispute arose. Plaintiff agreed to abide by the pre-dispute arbitration provision when she entered into a contract with Blue Cross. Consequently, plaintiff submitted to the AAA's jurisdiction when she filed and proceeded with a Demand for Arbitration based on the terms of the contract.
Moreover, the expansive scope of arbitral immunity protects any violations made by the AAA of its own internal rules. Arbitration associations are granted absolute immunity for a broad category of acts performed during the course of an arbitration proceeding. The two exceptions to arbitral immunity do not apply in this case, therefore, the AAA is immune from this suit.
Accordingly, the AAA's motion to dismiss the entire complaint is GRANTED based on arbitral immunity.
2. Collateral Attack
The AAA also moves to dismiss plaintiff's entire complaint arguing that plaintiff availed herself of the exclusive remedy of challenging misconduct in the arbitration process when she petitioned to the San Francisco Superior Court to vacate the arbitration award against her. The AAA argues that plaintiff's suit violates the doctrine of finality of judgments constituting an impermissible collateral attack on the Superior Court judgment. Plaintiff responds that her instant petition for relief is not an impermissible collateral attack on the state court judgment because the complaint is solely aimed at AAA's conduct which is separate from the arbitration proceeding itself.
An arbitration award constitutes a final judgment with the same force and effect as a judgment following a civil action. Delaney v. Contimental Airlines, Corp., 1993 U.S. Dist. LEXIS 9868, *19 (N.D. Cal. June 22, 1993). The federal Arbitration Act ("FAA") provides the exclusive remedy for challenging misconduct in the administration of an arbitration award. Corey, 691 F.2d at 1211. Sections 10, 11, and 12 of the FAA limit the scope of review by which parties may obtain judicial review of the arbitration proceedings or bring an action to set aside the arbitration award. Id. at 1212; see ATT v. United Computer Systems, Inc., 2001 U.S. App. LEXIS, *7630 (9th Cir. April 16, 2001) (grounds for vacating an award must be within the framework of § 10 of the FAA); see Edwards Sons, Inc. v. McCollough, 967 F.2d 1401, 1403 (9th Cir. 1992) (holding that federal court review of arbitration awards is extremely limited because an arbitration award will not be set aside unless it evidences a manifest disregard for law).
The parties here proceed under the assumption that the FAA applies rather than California's arbitration provision, Code of Civ. Pro. § 1286.2. It does not make any difference since California law is the same as federal law with respect to grounds for reviewing or vacating arbitration awards. Under California law and the FAA, the decision of arbitrators is final both as to questions of fact and law. U.S. for Use and Benefit of Chicago Bridge Iron Co. v. Ets-Hokin Corp., 284 F. Supp. 471 (N.D. Cal. 1966), aff'd 397 F.2d 935 (9th Cir. 1968).
In Corey, the court dismissed plaintiff's claims against the New York Stock Exchange for the acts of the arbitrators because the FAA provided the exclusive remedy to challenge the arbitration award. Id. at 1212. The court held plaintiff's claims constituted an impermissible collateral attack against the award even though he "[sued] different defendants than in the arbitration proceeding and [requested] damages for acts of wrong doing rather than vacation, modification, or correction of the arbitration award." Id. at 1213.
The doctrine of finality of judgments precludes a collateral attack on a final, prior judgment, even where it has been procured by fraud. Rios v. Allstate Ins. Co., 68 Cal.App.3d 811, 818 (1977). Courts will apply collateral estoppel to all issues that were decided in the first litigation as well as to legal arguments and factual matters that could have been raised in connection with those issues. Delaney, 1993 U.S. Dist. LEXIS 9868, at *22. In Rios, the court dismissed plaintiff's bad faith claim against Allstate because he did not file a petition to vacate the arbitration award before bringing the independent bad faith cause of action. Rios, 68 Cal.App.3d at 819. The court reasoned that plaintiffs cause of action constituted nothing more than an attempt to circumvent the final judgment rendered by the arbitration award.
Plaintiff distinguishes the instant case from Rios on the ground that plaintiff in that case sued the same defendant in both the state and federal cases whereas here, plaintiffs state suit was against Blue Cross while her federal suit is against the AAA. However, under Corey, the doctrine of finality of judgments explicated by the Rios court applies even when plaintiff sues different defendants for specific damages rather than modification or repeal of the award. As with the plaintiff in Corey, plaintiff in the present case was allegedly harmed by the impact of the acts instituted by the AAA on her award. Her complaint has "no purpose other than to challenge the very wrongs that affect the award for which review is provided" for. Corey, 691 F.2d at 1213.
Plaintiff has already sought relief from the San Francisco Superior Court, which denied her petition to vacate the award, and she appealed that decision to the California Court of Appeal, which affirmed the lower court. Although plaintiff is not attempting to relitigate the same cause of action adjudicated in the arbitration proceeding, her claims arise out of the AAA's alleged fraudulent conduct during the arbitration. The AAA's conduct is not separate from the proceeding itself, as plaintiff argues, because the AAA's commercial rules governed the arbitration.
Plaintiff's petition to vacate the award in state court alleged that 1) the arbitrator exceeded his powers by not adhering to California law; 2) the arbitrator engaged in misconduct by showing a bias in favor of Blue Cross; and 3) Blue Cross engaged in misconduct by withholding information during discovery copies mailed to counsel of record.
If plaintiff were to prevail on this cause of action, the state court judgment would have to be disturbed to compensate plaintiff for damages sustained by reason of the AAA's fraudulent conduct. Plaintiff should have raised her misrepresentation and fraud claims during arbitration or before the judgment became final. Plaintiff raises issues in her complaint that if true, will adversely affect the outcome of the arbitration with Blue Cross. In this respect, plaintiffs action serves as a collateral attack which the finality doctrine and collateral estoppel prohibit.
Accordingly, the AAA's motion to dismiss the entire complaint is GRANTED based on the doctrine of collateral estoppel as well as arbitral immunity. Having found two bases for dismissal, the court finds it unnecessary to address the other grounds advanced by defendant or its alternative motions. The dismissal is without leave to amend because an amendment would be futile in view of the court's findings of absolute immunity of the defendants. Schreiber Dist. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. the court determines "allegations of other facts consistent with the challenged pleading could not possibly cure the defect."); Doe v. U.S., 58 F.3d 494, 497 (9th Cir. 1995).
CONCLUSION
In accordance with the foregoing, the AAA's motion to dismiss plaintiffs entire complaint is GRANTED without leave to amend.
This order fully adjudicates the motion listed on No. 5 on the clerk's docket for this case, and closes the case, terminating any pending motions.
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