Antitrust Law Daily Wrap Up, ANTITRUST—Cal. App.: Antitrust, unfair competition claims against health care providers not subject to arbitration, (Oct 29, 2015)

By Greg Hammond, J.D.

A health care employee benefits trust was not required to arbitrate its California antitrust and unfair competition claims against a group of health care providers under an agreement between the provider group and Blue Shield of California. The California Court of Appeals in San Francisco affirmed the trial court’s order denying the providers’ motion to compel arbitration, agreeing that the trust was not bound to arbitrate claims pursuant to an agreement it never signed or even saw (UFCW & Employers Benefit Trust v. Sutter Health, October 27, 2015, Bruiniers, T.).

UFCW & Employers Benefit Trust, a health care employee benefits trust, filed suit against Sutter Health, a group of health care providers in Northern California, alleging that Sutter violated California’s Cartwright Act and Unfair Competition Law (UCL) by entering into anticompetitive contracts with network vendors. In particular, UFCW claimed that the contracts allow Sutter to foreclose price competition and to charge inflated prices that significantly exceeded prices charged by other local hospitals. The trial court denied Sutter’s motion to compel arbitration pursuant to an agreement between Sutter and Blue Shield of California (Provider Contract). UFCW had previously entered into an “administrative services only” agreement (ASO agreement) with Blue Shield, giving UFCW access to Blue Shield’s provider network.

On appeal, Sutter claims that the lower court erred in denying its motion to compel arbitration because: (1) Section 1375.7, subdivision (d) of the California Health and Safety Code binds UFCW to the terms of the Provider Contract; (2) UFCW is equitably estopped from avoiding arbitration; and (3) Blue Shield served as UFCW’s agent and agreed to arbitration on UFCW’s behalf.

Provider Contract. Section 1375.7, subdivision (d) of the California Health and Safety Code states that: “When a contracting agent sells, leases, or transfers a health provider’s contract to a payor, the rights and obligations of the provider shall be governed by the underlying contract between the health care provider and the contracting agent.” Sutter argued that this provision means that when such a “sale, lease, or transfer” of a provider’s contract occurs, the payor—UFCW in this case—is bound by all the terms in the Provider Contract. The court, however, determined that the legislature never indicated any intent to alter the obligations of third parties like UFCW, either in the plain language or legislative history of subdivision (d). In addition, the legislature never delegated the power to bind such third party payors to “contracting agents,” like Blue Shield, the court concluded. UFCW could therefore not be deemed to have agreed to arbitrate by virtue of the statue.

Equitable estoppel. Sutter next argued that UFCW is seeking to retain the benefits it receives under the Provider Contract while disavowing its obligations under that contract. The court rejected this argument, however, finding that UFCW is not seeking to enforce or take advantage of any portion of the Provider Agreement. Rather, the court found that UFCW is seeking to enforce the UCL and Cartwright Act, challenging the legitimacy of the terms of the Provider Contract and arguing that the agreement is part of Sutter’s unlawful scheme to prevent price competition.

Agency. Lastly, the court rejected Sutter’s argument that Blue Shield served as UFCW’s agent and agreed to arbitration on UFCW’s behalf. Sutter claimed that UFCW’s act of providing its members with Blue Shield cards, which they presented to Sutter, led Sutter to believe Blue Shield was UFCW’s agent for all purposes, and that UFCW’s use of the Blue Shield cards, combined with Blue Shield’s provision of other “administrative service” responsibilities under the ASO Contract, may have suggested actions of an agent acting on behalf of a principal in plan administration. The court failed to see how UFCW members’ use of Blue Shield cards to obtain services from Sutter providers reasonably suggested that UFCW had authorized Blue Shield to bind UFCW to all terms of the Provider Contract. Sutter also failed to demonstrate that any agency relationship between UFCW and Blue Shield was created by ratification.

The case is No. A143399.

Attorneys: Craig E. Stewart (Jones Day) and John M. Potter (Quinn Emanuel Urquhart & Sullivan) for Sutter Health. Richard L. Grossman (Pillsbury & Coleman), John L. Cooper (Farella Braun + Martel), Kit A. Pierson (Cohen Milstein Sellers & Toll), and Steven L. Stemerman (Davis Cowell & Bowe) for UFCW & Employers Benefit Trust.

Companies: UFCW & Employers Benefit Trust; Sutter Health

Cases: Antitrust CaliforniaNews