Jackson v. The Aliera Companies Inc

Opinion

6 UNITED STATES DISTRICT COURT 7 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 8 JACKSON, et al. Case No.: 19-cv-01281-BJR 9 Plaintiffs,

10 v. ORDER GRANTING MOTION TO COMPEL AND STAY PROCEEDINGS 11 THE ALIERA COMPANIES, INC., et al.

12 Defendants.

13 14 I. INTRODUCTION 15 Plaintiffs Gerald Jackson, Roslyn Jackson, Dean Mellom, Jon Perrin, and Julie Perrin 16 (“Plaintiffs”) bring this putative class action suit against Defendants Aliera Companies, Inc., 17 including its now-defunct subsidiary Aliera Healthcare, Inc. (collectively “Aliera”), and Trinity 18 HealthShare, Inc. (“Trinity”).1 Plaintiffs allege that Defendants sold them unauthorized health 19 insurance plans in violation of Washington law and engaged in unfair and deceptive practices in 20 violation of the Washington Consumer Protection Act, RCW 19.86.010 et seq. 21 Currently before the Court is Defendants’ Motion to Compel Plaintiffs Jon and Julie Perrin 22 to arbitrate their claims and to stay the proceedings as to those claims pending arbitration. Dkt. 23 1 The Jacksons and Mr. Mellom were the original plaintiffs in this action. Plaintiffs filed a Second Amended Complaint in July 2020 and added the Perrins as named plaintiffs. Dkt. Nos. 57, 67. 1 No. 61. Plaintiffs oppose the motion. Dkt. No. 83. Having reviewed the parties’ pleadings, the 2 record of the case, and the relevant legal authorities, the Court will grant the motion. The reasoning 3 for the Court’s decision follows. 4 II. BACKGROUND

5 Defendant Trinity offers a healthcare cost sharing plan known as “AlieraCare” and 6 Defendant Aliera markets, sells, and administers AlieraCare in Washington State on behalf of 7 Trinity. See Dkt. No. 57, Second Amend. Comp. (“SAC”). According to Plaintiffs, Trinity is a 8 health insurance company and AlieraCare is a health insurance plan, and therefore subject to 9 federal and state laws governing health insurance companies. Defendants counter that Trinity is 10 not an insurance company and does not provide health insurance. See Defs.’ Answers to Pls.’ 11 Second Am. Compl., Dkt. Nos. 62, 63. Instead, Defendants assert that Trinity is a healthcare 12 sharing ministry (“HCSM”) that facilitates the sharing of healthcare expenses among its members. 13 Regardless, the parties agree that AlieraCare provides members with benefits for medical coverage

14 in exchange for their monthly premiums. 15 Plaintiffs enrolled in AlieraCare in 2018 and 2019. Plaintiffs, all of whom paid their 16 monthly premiums and met their standard deductibles, expected that Trinity would pay their 17 medical claims as detailed by the AlieraCare benefits booklet (“Member Guide”). See Member 18 Guide, Dkt. No. 57, Ex. B. However, each was denied healthcare coverage after submitting their 19 claims to Trinity. Thereafter, Plaintiffs initiated this lawsuit. 20 In November 2019, Defendants moved to dismiss the lawsuit for failure to state a claim 21 under Federal Rule 12(b)(6). Dkt. Nos. 21, 23. Defendants sought dismissal of the case in its 22 entirety on the grounds that Trinity is not an insurance company and, instead, qualifies as a HCSM 23 under the Affordable Care Act, and is therefore exempt from Washington’s health insurances laws. 1 Id. In the alternative, Defendants argued that Plaintiffs filed this lawsuit prematurely because they 2 failed to exhaust dispute resolution procedures outlined in AlieraCare’s Member Guide. Id. The 3 Court denied Defendants’ motions to dismiss in May 2020. Dkt. No. 47. In doing so, this Court 4 concluded that Plaintiffs sufficiently pled allegations that, if proven true, establish that Trinity is

5 an insurance company subject to Washington’s health insurance laws. Id. at 9. The Court further 6 concluded that Plaintiffs sufficiently pled that the dispute resolution procedures set forth in the 7 Member Guide are illegal under Washington law and if Plaintiffs’ allegations are proven true, 8 Plaintiffs would be relieved “of any obligation to follow” such procedures. Id. at 12. 9 Thereafter, Defendants move to compel Plaintiffs’ claims to arbitration based on the 10 dispute resolution procedures set forth in the Member Guide. Dkt. No. 52. After the motion was 11 fully briefed, but before the Court decided the issue, Plaintiffs filed a second amended complaint 12 in which they added Jon and Julie Perrin as plaintiffs. Dkt. No. 57. In response, Defendants filed 13 the instant motion to compel the Perrins to arbitrate their claims as well. Dkt. No. 61. On July 20,

14 2020, the Court denied Defendants’ motion to compel the original Plaintiffs to arbitrate their 15 claims, determining that Defendants waived their right to arbitrate those claims. Before the Court 16 now is Defendants’ motion to compel the Perrins to arbitrate their claims. 17 III. DISCUSSION 18 Defendants move to compel the Perrins to arbitrate their claims pursuant to the binding 19 arbitration clause that is part of the dispute resolution procedures set forth in AlieraCare’s Member 20 Guide. In relevant part, the arbitration clause provides: 21 If the dispute is not resolved the matter will be submitted to legally binding arbitration in accordance with the Rules and Procedures of the American 22 Arbitration Association. Sharing members agree and understand that these [dispute resolution] methods shall be the sole remedy to resolved any controversy or claim 23 arising out of the Sharing Guidelines, and expressly waive their right to file a lawsuit in any civil court against one another for such disputes; except to enforce 1 an arbitration decision. … The aggrieved sharing member agrees to be legally bound by the arbitrator’s final decision. 2 Dkt. No. 57, Ex. 2 at 35.2 3 The parties dispute whether the foregoing arbitration clause is valid and enforceable. 4 Defendants assert that it is; Plaintiffs counter that the clause is void under Washington law, 5 specifically RCW 48.18.200(b), which prohibits binding arbitration clauses in Washington 6 insurance contracts. However, before reaching the merits of this argument, this Court must first 7 determine whether it has the authority to resolve the issue of the clause’s validity. 8 A. Who Has the Authority to Determine the Validity of the Arbitration 9 Agreement: The Court or the Arbitrator?

10 “Congress enacted the Federal Arbitration Act (FAA) in 1925 ‘in response to a perception 11 that courts were unduly hostile to arbitration.’” Newirth v. Aegis Senior Comm., LLC, 931 F.3d 12 935, 939-40 (9th Cir. 2019) (quoting Epic Sys. Corp. v. Lewis, ––– U.S. ––––, 138 S. Ct. 1612, 13 1621 (2018)). Pursuant to the FAA, arbitration agreements “shall be valid, irrevocable, and 14 enforceable, save upon such grounds that exist at law or in equity for the revocation of any 15 contract.” 9 U.S.C. § 2. It is ordinarily the court’s role to determine whether a valid arbitration 16 agreement exists, see Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 17 2000), but parties to an arbitration agreement can agree to delegate the gateway issue of 18 arbitrability to the arbitrator. Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). When 19 an agreement “clearly and unmistakably” delegates the threshold issue of arbitrability to the 20 arbitrator, a court must send that question to arbitration. Id. at 80. The incorporation of the 21 American Arbitration Association (“AAA”) rules and procedures into the arbitration agreement 22

2 Plaintiffs suggest that the Perrins’ Member Guide did not contain a binding arbitration agreement. See Dkt. No. 83 23 at 2-3. However, this allegation contradicts the Perrins’ allegation in the Second Amended Complaint in which they concede they received a Member Guide with the arbitration clause in it when they enrolled in AlieraCare. Dkt. No. 57 at ¶ 104. 1 “constitutes clear and unmistakable evidence that contracting parties agreed to arbitrate 2 arbitrability.” Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015). 3 Here, as set forth above, the disputed arbitration clause incorporates the AAA rules; 4 therefore, the issue of arbitrability has been delegated to the arbitrator.3 However, Plaintiffs argue

5 that it is still for this Court to determine the issue of arbitrability. According to Plaintiffs, this Court 6 must resolve the issue of arbitrability because Plaintiffs challenge the arbitration clause—including 7 its incorporation of the AAA rules. 8 Challenges to arbitration agreements “can be divided into two types.” Buckeye Check 9 Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 (2006). “One type challenges specifically the 10 validity of the agreement to arbitrate.” Id. “The other challenges the contract as a whole …”. Id. 11 This distinction is important because a challenge to the validity of the agreement to arbitrate is 12 resolved by the court; a challenge to the validity of the contract as a whole is resolved by the 13 arbitrator. Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1264-65 (9th Cir. 2006) (stating that

14 “when the crux of the complaint challenges the validity or enforceability of the agreement 15 containing the arbitration provision, then the question of whether the agreement, as a whole, is 16 unconscionable must be referred to the arbitrator” but that “[w]hen the crux of the complaint is not 17 the invalidity of the contract as a whole, but rather the arbitration clause provision itself, then the 18 federal courts must decide whether the arbitration provision is invalid and unenforceable”). 19 The Ninth Circuit further clarified this distinction in Bridge Fund Capital Corp. v. 20 Fastbucks Franchise Corp., 622 F.3d 996 (9th Cir. 2010), explaining that a court decides the issue 21 3 Plaintiffs suggest that courts should not conclude that the incorporation of the AAA rules in a contract constitutes 22 clear and unmistakable evidence that the parties delegated the issue of arbitrability to the arbitrator if at least one of the parties is not “sophisticated”. Dkt. No. 83 at 10. The Ninth Circuit has expressly rejected this argument. Brennan v. Opus Bank, 796 F.3d 1125, 1130 (9th Cir. 2015) (“Our holding today should not be interpreted to require that the 23 contracting parties be sophisticated or that the contract be ‘commercial’ before a court may conclude that the incorporation of the AAA rules constitutes ‘clear and unmistakable evidence of the parties’ intent’ to delegate arbitrability to the arbitrator). 1 of the validity of an arbitration clause “when a plaintiff argues that [the] clause, standing alone, is 2 unenforceable—for reasons independent of any reasons the remainder of the contract might be 3 invalid.” Id. at 1000 (emphasis added); Id. at 1001-02 (a court decides the validity question when 4 the arbitration clause’s validity “is an entirely distinct issue from the contract claims in the case”)

5 (emphasis added). Conversely, the Ninth Circuit noted, if “[t]he ‘crux of the complaint’ … makes 6 clear that the challenge to the arbitration clause is the same challenge that is being made to the 7 entire contract,” validity is decided by the arbitrator. Id. at 1001 (emphasis added). 8 Thus, in Bridge Fund, the Ninth Circuit determined that the issue of arbitrability was 9 properly before the district court when the plaintiffs in that case specifically challenged the 10 arbitration agreement as unenforceable because it: “(1) was not mutually entered into; (2) 11 improperly limit[ed] Plaintiffs’ damages; (3) impermissibly shorten[ed] the statute of limitations; 12 (4) contain[ed] invalid place and manner restrictions; (5) [sought] to negate Plaintiffs’ unwaivable 13 rights under the CFIL; and (6) wrongly ban[ned] class and consolidated actions[.]” Id. at 1002.

14 The Ninth Circuit noted that each of these challenges to the arbitration clause is distinct “from 15 Plaintiffs’ challenge to the validity of the [underlying] franchise agreement as a whole.” Id. In 16 reaching its decision, the Ninth Circuit contrasted the Bridge Fund plaintiffs’ challenges to the 17 arbitration agreement with those raised in Nagrampa, noting that in that case the issue of 18 arbitrability was for the arbitrator to decide because the Nagrampa plaintiffs did not raise a distinct 19 challenge to the arbitration clause but, rather, simply alleged that the clause was “unenforceable 20 because it was contained in an illegal usurious contract which was void ab initio.” Id. at 1001 21 (quoting Nagrampa, 469 F.3d at 1268). 22 Here, Plaintiffs claim that AlieraCare is illegal because it is an “unauthorized health 23 insurance plan(s) in violation of Washington law.” Dkt. No. 57 at ¶ 123. They charge that the 1 arbitration clause is unenforceable because Washington law prohibits binding arbitration 2 agreements in insurance contracts. Id. at ¶ 126(c)(i). In other words, Plaintiffs’ basis for arguing 3 that AlieraCare is illegal and their basis for arguing that the arbitration clause is void are the same: 4 AlieraCare is an unauthorized health insurance plan that runs afoul of Washington insurance law.

5 Thus, Plaintiffs’ challenge to the arbitration clause is the same challenge to AlieraCare as a whole 6 and must be decided by the arbitrator. Bridge Fund, 622 F.3d at 1001-02; see also G&K, P.A. v. 7 Willett, 2012 WL 1438474, *5 (D. Ariz. April 25, 2012) (“Yakima does not present a basis for 8 invalidating the arbitration clause that is ‘independent of any reasons the remainder of the contract 9 might be invalid’ or ‘an entirely distinct issue from the contract claims in the case … [a]s a result, 10 Yakima’s challenge to the arbitration clause must be decided by the arbitrator.”) (quoting Bridge 11 Fund, 622 F.3d at 1001-02). 12 B. Whether Defendants Waived Their Right to Compel the Perrins to Arbitration 13 Having determined that the arbitrator must decide the threshold issue of whether the 14 arbitration clause is enforceable, the Court will turn to Plaintiffs’ claim that Defendants waived 15 their right to compel the Perrins to arbitration. As stated above, the FAA provides that arbitration 16 agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law 17 or in equity for the revocation of any contract.” Newirth, 931 F.3d at 940 (quoting 9 U.S.C. § 2). 18 One such ground is waiver. Id. Whether a party waived its right to compel arbitration is an issue 19 for the court to decide. Martin v. Yasuda, 829 F.3d 1118, 1124 (9th Cir. 2016) (“We have made 20 clear that courts generally decide whether a party has waived his right to arbitration by litigation 21 conduct.”); Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1120 (9th Cir. 2008) (stating that the 22 issue of whether a party waived the right to enforce an arbitration clause was “properly heard by 23 the district court”). 1 A party seeking to prove that the right to compel arbitration has been waived must carry 2 the heavy burden of demonstrating: (1) knowledge of an existing right to compel arbitration; (2) 3 intentional acts inconsistent with that existing right; and (3) prejudice to the person opposing 4 arbitration from such inconsistent acts. Newirth, 931 F.3d at 940. Plaintiffs have not carried this

5 heavy burden with respect to the Perrins’ claims. 6 While the Court denied the Defendants’ motion to compel the original Plaintiffs to 7 arbitration on the grounds of waiver, the analysis is different for the Perrins’ claims. This is because 8 until June 10, 2020 when Plaintiffs amended the operative complaint to add Jon and Julie Perrin 9 as named parties in this action, the Perrins were putative class members. This distinction is 10 significant because the Ninth Circuit has clearly stated that a party seeking to prove waiver of the 11 right to arbitration must demonstrate acts inconsistent with the existing right to compel arbitration, 12 see Martin, 829 F.3d at 1124; Fisher v. A.G. Becker Paribas Inc., 791 F.2d 691, 694 (9th Cir. 13 1986), and district courts within this Circuit have determined that a party cannot move to compel

14 putative class members to arbitration prior to class certification because putative class members 15 are not parties to the action. See, e.g., In re TFT-LCD (Flat Panel) Antitrust Litigation, 2011 WL 16 1753784, at *4 (N.D. Cal. May 9, 2011) (holding that defendants did not waive their right to 17 compel arbitration by filing multiple motions to dismiss because defendants did not have an 18 existing right to compel putative class members prior to class certification); Brown v. DirecTV, 19 LLC, 2019 WL 6604879, at *5 (C.D. Cal. 2019) (“As DIRECTV had no occasion to move to 20 compel any absent class members to arbitrate their claims until the class was certified, its supposed 21 delay in asserting an arbitration defense does not amount to conduct inconsistent with its right to 22 compel arbitration.”); Laguna v. Coverall North America, Inc., 2011 WL 3176469, *8 (S.D. Cal. 23 1 July 26, 2011) (“Defendants cannot move to compel arbitration against putative class members 2 prior to certification of a class.”). 3 While the Ninth Circuit has not yet spoken on this issue, the Eleventh Circuit addressed 4 the issue in Gutierrez v. Wells Fargo Bank, NA, 889 F.3d 1230 (11th Cir. 2018). In Gutierrez, the

5 Eleventh Circuit noted that seeking to compel putative class members to arbitration prior to class 6 certification is futile because such class members are “speculative and beyond the reach of the 7 Court’s power”. Id. at 1238 (noting that it “would have been impossible in practice to compel 8 arbitration against speculative plaintiffs and jurisdictionally impossible for the District Court to 9 rule on any those motions before the class was certified”). This Court finds the Eleventh Circuit’s 10 reasoning persuasive. Given that Defendants moved to compel the Perrins to arbitrate their claims 11 within ten days of the Perrins becoming named plaintiffs in this action, and given that Defendants 12 did nothing within that ten-day period to suggest that they intended to waive their right to compel 13 the Perrins to arbitration, this Court finds that Plaintiffs have not met their heavy burden of

14 demonstrating waiver. 15 IV. CONCLUSION 16 For the foregoing reasons, the Court HEREBY GRANTS Defendants’ motion to compel 17 the Perrins’ claims to arbitration. The Court further GRANTS Defendants’ motion to stay the 18 proceedings in this Court as they relate to the Perrins’ claims while the parties arbitrate those 19 claims. The remaining proceedings in this case shall proceed. 20 Dated this 18th day of August 2020. 21 A 22 B arbara Jacobs Rothstein 23 U.S. District Court Judge