In Which We Create A New Side Bar Category-- Arbitration: State Regulatory Law
Nearly every new post on this blog links to one of our many sidebar categories. This post, however, addresses an arbitration issue that required the creation of a new sidebar category: "Arbitration: State Regulatory Law." The issue presented was whether an optometrist who entered into a "Network Doctor Agreement" with his vision care insurer in California, VSP, could rely on state regulatory law to avoid having to arbitrate a dispute with VSP after VSP concluded that Epstein had purchased lenses from an unapproved supplier and terminated his provider agreement. Gordon Epstein v. Vision Service Plan, A155219 (1/1 10/22/20) (Banke, Margulies, Sanchez).
Epstein's provider agreement described a two-step dispute resolution process: (1) a "Fair Hearing" with an internal review process; (2) if the first step did not resolve the dispute, then "Binding Arbitration" requiring arbitration pursuant to the FAA. Seeking to avoid going to the second step, Epstein instead filed an administrative mandamus proceeding. As Justice Banke explained, "he maintained the second step of the dispute resolution process was contrary to state regulatory law requiring certain network provider contracts to include a procedure for prompt resolution of disputes and expressly stating arbitration 'shall not be deemed' such 'a provider dispute resolution mechanism.'"
Well might you ask, why wouldn't such a regulatory law unfairly burden an agreement to arbitrate, and thus be preempted by the Federal Arbitration Act? Here, Epstein argued that the state law was not preempted by virtue of the McCarran-Ferguson Act, "which generally exempts from federal law, state laws enacted to regulate the business of insurance."
While that may sound like a pretty good argument, the Court of Appeal concluded that the state regulatory law did not make the second step of the dispute resolution process requiring arbitration unenforceable, because the state regulatory law only applied to the initial step, which did not require binding arbitration.
Because Epstein had failed to exhaust administrative remedies requiring him to ask for arbitration, the trial court's judgment rejecting his writ petition was AFFIRMED.
Comments