Case Title: Foltz v. State Farm Mutual Auto. Ins. Co.

Citation: 

Docket Number: S43426

State: oregon

Court: Oregon Supreme Court

Date: 1998-01-23T00:00:00Z

Document:
Filed:  January 23, 1998

IN THE SUPREME COURT OF THE STATE OF OREGON

DEBBIE FOLTZ, 

	Plaintiff,

	v.

STATE FARM MUTUAL AUTOMOBILE
INSURANCE COMPANY, an Illinois
corporation, CALIFORNIA INSTITUTE
OF MEDICAL RESEARCH AND 
TECHNOLOGY, INC., dba Comprehensive
Medical Review, and RALPH
HOUSEHOLDER,

	Defendants.

(USDC Civil 94-6293-HO; SC S43426)

	In Banc

	On certified questions from United States District Court
Order dated February 26, 1997. 

	Argued and submitted March 7, 1997.

	Michael R. Hogan, United States District Judge.

	Kim E. Hoyt, and William D. Brandt, of Ferder, Brandt,
Casebeer, Cooper, Hoyt, & French, LLP, Salem, and Daniel J. Gatti
and David L. Kramer, of Gatti, Gatti, Maier, Krueger &
Associates, Salem, filed the brief for plaintiff. Kim E. Hoyt and
Mark E. Griffin, Portland, argued the cause for plaintiff.

	I. Franklin Hunsaker, of Bullivant, Houser, Bailey,
Pendergrass & Hoffman, P.C., Portland, argued the cause for
defendants State Farm Mutual Automobile Insurance Company.  With
him on the briefs were Douglas G. Houser and Stuart D. Jones, and
Ralph C. Spooner, of Spooner & Much, P.C., Salem.

	Bruce E. Smith, of Gleaves, Swearingen, Larsen, Potter,
Scott & Smith, LLP, Eugene, argued the cause and filed the brief
for defendant California Institute of Medical Research and
Technology, Inc. 

	Douglas G. Schaller and Kelly M. Hagan, of Johnson, Clifton,
Larson & Corson, P.C., Eugene, filed a brief amicus curiae on
behalf of Oregon Trial Lawyers Association.

	VAN HOOMISSEN, J.

	Certified questions answered.

	Fadeley, J., dissented and filed an opinion.

		VAN HOOMISSEN, J.

		This case is before the court on certification of
questions of Oregon law asked by the United States District Court
for the District of Oregon pursuant to ORS 28.200 et seq (1995). 

		We take the following facts from the district court's
order:

		"Plaintiff was insured by defendant State Farm
Mutual Automobile Insurance Company (State Farm) at the
time her son was allegedly injured in an automobile
accident.  Plaintiff sought reimbursement for her son's
medical treatment under the Personal Injury Payment
(PIP) provisions of her insurance policy issued in
Oregon by defendant State Farm.

		"ORS 742.524(1)(a) requires that an automobile
insurance carrier provide a minimum of $10,000 coverage
for reasonable and necessary expenses for medical
treatment required as a result of injuries sustained in
an automobile accident.

		"Defendant State Farm submitted the medical
records of plaintiff's son to defendant California
Institute of Medical Research & Technology, Inc., doing
business as Comprehensive Medical Review (CMR) for a
review of the reasonableness and necessity of the
treatment provided.  Thereafter, State Farm reduced or
denied benefits for treatment rendered to plaintiff's
son.

		"Following the denial or reduction of benefits,
plaintiff requested arbitration.  Defendants contend
arbitration was commenced but that plaintiff's counsel
withdrew.  Plaintiff contends arbitration never
commenced because the parties could not agree on the
scope of arbitrable issues and could not agree as to
the scope of discovery within the arbitration.

		"Plaintiff then initiated the instant actions.[(1)] 
Plaintiff's complaint alleges a conspiracy between
State Farm and CMR to commit fraud by knowingly
preparing false and misleading reports indicating that
medical treatment provided to plaintiff's son was
neither reasonable nor necessary when, allegedly, it
was.  Plaintiff alleges she has been damaged as a
result of this alleged fraud.

		"Plaintiff contends that she should be able to
proceed against defendants in court without first
arbitrating the underlying PIP dispute.  Plaintiff
contends ORS 742.520(6), in combination with ORS
742.522, violates plaintiff's right to a jury trial in
contravention of the guarantees provided by Article I,
section 17, of the Oregon Constitution. * * *

		"Defendant State Farm contends that before
plaintiff can maintain the instant action, she must
first arbitrate the denial or reduction in amount of
PIP benefits in accordance with ORS 742.520(6). 
Defendant State Farm further contends that until such
time as the mandatory arbitration has been completed
and defendant State Farm has refused to pay the
resulting arbitration award, if any, plaintiff has not
sustained any damages that would entitled her to pursue
the instant action * * *."

		Defendants moved to dismiss plaintiff's action, arguing
that plaintiff is required to arbitrate the reduction or the
denial of PIP benefits.  In considering that motion, the district
court certified three questions to this court.  We accepted
certification of those questions.  ORS 28.200; see generally
Western Helicopter Services v. Rogerson Aircraft, 311 Or 361, 811
P2d 627 (1991) (discussing factors court considers in exercising
discretion to accept certified questions).

		ORS 742.520(6) provides:

		"Disputes between insurers and beneficiaries about
the amount of personal injury protection benefits, or
about the denial of personal injury protection
benefits, shall be decided by arbitration except that
if all requirements for bringing an action in the small
claims department of a justice or district court are
met, the insured may elect to file such an action
rather than submitting the claim to arbitration."(2)

ORS 742.522(1) provides:

		"Arbitration under ORS 742.520(6) is binding on
the parties to the arbitration."

		Defendants California Institute of Medical Research and
Technology, Inc. (CMR), and Householder are neither "insurers"
nor "beneficiaries."  Therefore, ORS 742.520(6) does not apply to
them.  The certification order consequently focuses on State
Farm's motion to dismiss.(3)  

		I.  The first certified question:

		"Does ORS 742.520(6), in combination with ORS
742.522, or other related statutes, require the parties
to arbitrate the reduction in amount or denial of PIP
benefits when the underlying claims are that the
reduction or denial was based on fraud, negligence and
breach of contractual duties?"

		State Farm argues that plaintiff is required under ORS
742.520(6) to submit to arbitration before she can pursue
litigation.  Plaintiff responds that, because her complaint
alleges that the arbitration procedure itself is part of
defendants' scheme to defraud her of PIP benefits, she is not
required to arbitrate.(4) 

		The first certified question raises an issue of
statutory construction, to which we apply the template set forth
in PGE v. Bureau of Labor and Industries, 317 Or 606, 610-12, 859
P2d 1143 (1993).  Our task is to discern the intent of the
legislature.  ORS 174.020; PGE, 317 Or at 610.  At the first
level of analysis, we examine both the text and the context of
the statute, employing rules of construction that bear directly
on how to read the text and context.  Id. at 610-11.  If the
legislature's intent is clear from the inquiry into text and
context, further inquiry is unnecessary.  We conclude that ORS
742.520(6) is clear at the first level of analysis.

		ORS 742.520(6) provides that disputes (except small
claims) between insurers and beneficiaries about the "amount" or
the "denial" of PIP benefits "shall be decided by arbitration." 
The term "disputes" is unqualified.  Therefore, it covers all
disputes that arise from any source or theory, including fraud or
negligence.  This case involves a "dispute" over the "amount" of
PIP benefits.  There is nothing unique about fraud, negligence,
or breach of contract claims that suggests that an arbitrator
cannot resolve disputes in which such claims are made.  We
conclude, therefore, that ORS 742.520(6) requires plaintiff to
submit to arbitration of all her claims identified in the
district court's question.

		We answer the first certified question "YES."

		II.  The second certified question:

		"If the answer to question No. 1 is 'yes,' can
Plaintiff establish damages on her claims without
having first arbitrated the reduction in amount or
denial of PIP benefits?"  

		The second question appears to be intended to present
the mirror image of the first question, i.e., to ask whether, as
a practical matter, plaintiff's claim for damages for denial of
PIP benefits is in a posture to proceed to a judgment for damages
before arbitration occurs.  As our answer to the first question
makes clear, it is not.  Because plaintiff rests her fraud claim
on an alleged "wrongful scheme" by defendants to reduce or deny
PIP benefits contractually due to her, she cannot recover a
judgment for her damages without first establishing that PIP
benefits were due to her.  The existence and amount of any
damages for fraud requires proof that PIP benefits were due and
were denied.  Therefore, before she proceeds to trial on her
claim and seeks a judgment for her damages, plaintiff first must
arbitrate her contractual right to, and the reduction or denial
of, PIP benefits.(5)

		We answer the second certified question "NO."

		III.  The third certified question:

		"If the answer to question number 1 is 'yes' and
the answer to question 2 is 'no,' does ORS 742.520(6),
in combination with ORS 742.522, or other related
statutes, violate a plaintiff-insured's right to a jury
trial on her claims based on fraud, negligence and
breach of contractual duties under Article I, section
17, of the Oregon Constitution, where the plaintiff-insured and defendant-insurer have not yet arbitrated
their PIP dispute and the amount of the claims is not
within the jurisdiction of the small claims court?"

		Article I, section 17, of the Oregon Constitution,
provides:

		"In all civil cases the right of Trial by Jury
shall remain inviolate."

Because ORS 742.522(1) makes mandatory arbitration under ORS
742.520(6) binding on the parties, that statute takes away
something that Article I, section 17, guarantees plaintiff, i.e.,
a jury trial.

		In Molodyh v. Truck Insurance Exchange, 304 Or 290, 744
P2d 992 (1987), the insured brought an action on a fire insurance
policy.  ORS 743.648 set forth a permissive appraisal process in
the event of a dispute over the amount of the loss.  Oregon law
required that the appraisal process be included in all fire
insurance policies.  The issue was whether ORS 743.648 violated
Article I, section 17, by depriving the insured of the right to a
jury trial.  Although the appraisal process was permissive to the
demanding party, once invoked by the demanding party the process
became mandatory for the non-demanding party.  Id. at 298.

		One of the parties in Molodyh demanded an appraisal.(6) 
The plaintiff argued that the appraiser's award could not bind
him without violating Article I, section 17.  This court agreed
with the plaintiff, holding that, if the appraiser's award is
binding on the non-demanding party, the statute "runs afoul of
Article I, section 17."  Id. at 299.  To save ORS 743.648, this
court construed the statute to be non-binding in respect of the
non-demanding party.  Ibid.

		In this case, the district court states:

	"Following the denial or reduction of benefits,
plaintiff requested arbitration.  Defendants contend
arbitration was commenced but that plaintiff's counsel
withdrew.  Plaintiff contends arbitration never
commenced because the parties could not agree on the
scope of arbitrable issues and could not agree as to
the scope of discovery within the arbitration."

		ORS 742.520(6) makes arbitration mandatory (except for
small claims).  Because the appraisal process in Molodyh was
permissive, Molodyh is factually distinguishable from this case. 
We conclude that whether plaintiff voluntarily requested
arbitration in this context is not dispositive of the
constitutionality of ORS 742.522(1), because plaintiff was
required to arbitrate by ORS 742.520(6).  Any award made as a
result of the mandatory arbitration under ORS 742.520(6) is not
binding on plaintiff.(7)

		We proceed to consider whether ORS 742.522(1) can be
severed from ORS 742.520(6), thereby leaving the requirement of
mandatory arbitration in place.  ORS 174.040 provides:

		"It shall be considered that it is the legislative
intent, in the enactment of any statute, that if any
part of the statute is held unconstitutional, the
remaining parts shall remain in force unless:

		"(1) The statute provides otherwise;

		"(2) The remaining parts are so essentially and
inseparably connected with and dependent upon the
unconstitutional part that it is apparent that the
remaining parts would not have been enacted without the
unconstitutional part; or

		"(3) The remaining parts, standing alone, are
incomplete and incapable of being executed in
accordance with the legislative intent."

		Applying the analysis of ORS 174.040, we conclude that
ORS 742.520(6) can be saved.  First, no provision in the PIP
statutes provides otherwise.  Second, ORS 742.520(6) is not so
essentially and inseparably connected with and dependent on ORS
742.522(1) that it is apparent that the former would not have
been enacted without the latter.  The best evidence of the
independence of these two provisions is the fact that the
mandatory arbitration of disputes over the amount or denial of
PIP benefits predated the requirement that such arbitration be
binding on the parties.  See ORS 743.800(6) (1985) (requiring
arbitration; no provision that the arbitration was binding); Or
Laws 1987, ch 588, § 5 (adding binding arbitration provision). 
Third, standing alone, ORS 742.520(6) is neither incomplete nor
incapable of being executed in accordance with legislative
intent. 

		We answer the third certified question "YES."			In summary, we hold that, standing alone, ORS
742.520(6) (1995) does not violate Article I, section 17.  We
further hold that, in this context, ORS 742.552(1) (1995)
violates Article I, section 17, of the Oregon Constitution.

		Certified questions answered.

		FADELEY, J., dissenting.

		I respectfully dissent.

		I dissent from the answers given by the majority for
use by the federal court.  I would hold that the statute does
indeed violate the right to a jury trial.

		Simply put, the majority holds that the Oregon
legislature has the power to prevent a fraud claim (or any tort
claim) from being considered by a jury until after the claimant's
legal entitlement to any recovery at all, together with the
degree or amount of such recovery for injury, is submitted to
arbitration and that arbitration is completed.

		Article I, section 17 of the Oregon Constitution
provides:

		"In all civil cases the right of Trial by Jury
shall remain inviolate."  (Emphasis added.)

The majority violate that constitutional right in tort cases, in
my view, by placing an inescapable hurdle involving cost and
substantial delay in front of, and as a precondition to, exercise
of the "right [that] shall remain inviolate."  

		"Inviolate" is strong, direct language.  Telling one
who alleges injuries from tort that she or he has no claim to a
jury trial until after an arbitration proceeding is concluded
does not hold inviolate the right that the pioneers intended to
guarantee to themselves and posterity when the state constitution
went into effect in 1859.

		Leaving aside the need to preserve inviolate the
historic and constitutional right to trial by jury, I also
believe that the majority leave the law about insurer-insured
arbitrations potentially a mess.  Heretofore this court has
granted summary judgment to the insurer or its stand-in but has
done so saying that the "claimant * * * cannot be required to
arbitrate the claim."  Carrier v. Hicks, 316 Or 341, 352, 851 P2d
581 (1993).  Here, the majority says to the contrary: Claimant
must engage in a complete arbitration or there is no jury and no
jury trial.  (Slip op 6, 10.)(8)

		I first warned of the loss of a jury trial in dissents
with Justice Unis in Carrier and Mazorol v. Coats, 316 Or 367,
371-72, 852 P2d 178 (1993).

		In the present case the majority supports its decision
by the following sentence:

	"The existence and amount of any damages for fraud
requires proof that PIP benefits were due and were
denied.  Therefore, before she proceeds to trial on her
claim and seeks a judgment for her damages, plaintiff
first must arbitrate her contractual right to, and the
reduction or denial of, PIP benefits."  (Slip Op. at
6).

Significantly, not even a bare citation to a law review, let
alone a case or treatise, accompanies that statement of what is
required for actionable fraud -- that a contract must first be
enforced before conduct in some way related to the contract
effectively may be actionable in fraud.  To see that what the
majority holds is not so, one need go no further than to check
the definitions of "actionable fraud" or "fraud" in Black's Law
Dictionary.  Moreover, the only substantive case cited by the
majority is not about fraud.

1. 	Plaintiff's original complaint alleged claims for fraud
and intentional interference with contractual relations. 
Plaintiff's First Amended Complaint alleges claims for
negligence, fraud, conspiracy to commit fraud, negligent
misrepresentation, breach of duty of good faith and fair dealing,
and breach of contract.

2. 	ORS 742.520(6) was amended in 1997 to provide that
disputes about PIP benefits shall be decided by arbitration "if
mutually agreed to at the time of the dispute."  Or Laws 1997, ch
808, § 3.  However, because that amendment applies only to
insurance policies issued or renewed on or after October 4, 1997,
the effective date of the amendment, it does not affect the
outcome in this case.  Or Laws 1997, ch 808, § 11.  

3. 	The district court's certification order states:

		"Neither plaintiff-insured nor defendant State
Farm has argued that arbitration is compelled by the
insurance contract."

As the case has been presented to us by the district court's
order, the operative assumption is that the provisions of the
parties' contract are not relevant.  Thus, any contract issues
must be raised and argued in the district court.

4. 	Plaintiff asserts that, although not all her damages
are the result of State Farm's reduction or denial of PIP
benefits, the amount of PIP benefits to which she is entitled
comprises part of her damages.

5. 	ORS 742.520(6) and ORS 742.522(1) impose no impediment
to plaintiff's possible pursuit of arbitration on her claims
during the pendency of her action in court.

6. 	The record in Molodyh was not clear as to which party
had demanded the appraisal.  304 Or at 292 n 3.

7. 	In reality, the issue whether the statutory scheme
violates plaintiff's state constitutional right to a jury trial
would be raised after arbitration only if a court were asked to
dismiss her claims for the reason that, under ORS 742.522(1), the
arbitration award was binding.  In this case, we note that
defendants do not argue that any arbitrator's award will be
binding on plaintiff.  Defendants argue only that plaintiff must
arbitrate before litigating, and we agree with that proposition.

8. 	Perhaps I misjudge the majority and they are overruling
Carrier and Mazorol by citing only to a quite different
predecessor, Molodyh v. Truck Insurance Exchange, 304 Or 290, 744
P2d 992 (1987).  Molodyh, which in any event has nothing to do
with fraud or negligence, is in reality authority requiring a
result opposite to the majority result, even as to a simple
contract matter.  304 Or at 300.

		Molodyh also accurately recounts the kind of cases in
which a jury trial has been required in Oregon for over a
century.  304 Or at 295-97.  Under Molodyh and all of the cases
there cited, this case would go to a jury without a costly,
delaying hurdle being placed in the way.