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Chan Healthcare Group, PS v. Liberty Mutual Fire Insurance Co.

Court of Appeals of Washington, Division 1

December 11, 2017

CHAN HEALTHCARE GROUP, PS, a Washington professional services corporation, Respondent,
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY and LIBERTY MUTUAL INSURANCE COMPANY, foreign insurance companies, Petitioners.

          VERELLEN, C.J.

         This appeal turns on the standard governing a due process collateral attack on a sister state's resolution of a multistate class action. Under full faith and credit principles, a collateral attack in Washington fails if that same due process challenge was raised, litigated, and decided in the sister state. Under these circumstances, Washington courts do not second guess the analysis and resolution by the trial and appellate courts in the sister state.

         Because the substance of respondent's due process claim of inadequate representation was raised, litigated, and decided in Illinois, the Illinois settlement is entitled to full faith and credit.

         Therefore, we reverse.

         FACTS

         This appeal concerns use by Liberty Mutual Insurance Company (Liberty) of a computerized database to determine the amounts payable for treatments covered by personal injury protection (PIP) coverage under automobile insurance policies. Washington's PIP statute requires automobile insurers to pay all reasonable and necessary medical expenses incurred by the insured.[1] Insurers must "conduct[ ] a reasonable investigation" before refusing to pay claims.[2]Liberty sets the benchmark reasonable medical charges payable using the FAIR Health database, reflecting other healthcare provider charges in the same geographic area.

         Liberty's use of the FAIR Health database was previously challenged in Lebanon Chiropractic Clinic v. Liberty Mutual Insurance Company, a multistate class action lawsuit litigated in Illinois.[3] The class included Washington providers. The lawsuit alleged that Liberty's use of the FAIR Health database was unfair under the Illinois Consumer Fraud and Deceptive Business Practices Act[4] and other states' equivalent acts, including the Washington Consumer Protection Act.[5]Chan, a Lebanon class member, received reasonable notice and did not opt out.

         In October 2014, the parties in Lebanon reached a proposed class settlement. In January 2015, class member Dr. David Kerbs, a Washington chiropractor, filed an objection to the proposed settlement asserting, among other things, "Lebanon Chiropractic Clinic is an inadequate class representative for Washington providers and has a conflict of interests with Washington providers."[6]Dr. Kerbs argued the conflict of interest was the result of differences between Illinois and Washington's consumer protection statutes.

         In February 2015, following a fairness hearing, the Illinois court entered a final order and judgment approving settlement and dismissing the case. In the order, the court acknowledged Dr. Kerbs' objection, overruled all objections to the proposed settlement, and determined the named plaintiff was an adequate representative.[7]

         Dr. Kerbs appealed the judgment to the Appellate Court of Illinois. He specifically challenged the adequacy of representation resulting from conflict between the Illinois and Washington's consumer protection and PIP statutes. In February 2016, the Illinois appellate court affirmed the trial court in an unpublished opinion.[8]

         In September 2015, while Dr. Kerbs' appeal was still pending in Illinois, Chan Healthcare Group, PS (Chan) filed the current case against Liberty in King County Superior Court. Chan alleged Liberty's reliance on the FAIR Health database constituted an unfair practice under the Washington Consumer Protection Act.

         Chan moved for a declaratory judgment that Lebanon did not preclude the claims because the class representative was an inadequate representative. Liberty moved for summary judgment seeking dismissal of the case. The superior court declined to give full faith and credit to the Lebanon settlement and found the named plaintiff in Lebanon did not adequately represent the interests of Washington providers. The trial court granted Chan's motion and denied Liberty's motion.

         We granted Liberty's motion for discretionary review.

         ANALYSIS

         Liberty contends the trial court erred when it failed to give full faith and credit to the Lebanon settlement.

         We review a court's refusal to accord full faith and credit to a foreign judgment de novo.[9] The full faith and credit clause of the United States Constitution requires states "to recognize judgments of sister states."[10] A state court judgment in a class action is "presumptively" entitled to full faith and credit from the courts of other jurisdictions.[11] "[P]arties can collaterally attack a foreign order 'only if the court lacked jurisdiction or constitutional violations were involved."'[12] Specifically, "a foreign state is not required to give full faith and credit to a judgment against an affected party who did not receive due process when the judgment was entered."[13] Due process in a class action requires (1) "'reasonable notice' that apprises the party of the pendency of the action, affords the party the opportunity to present objections, and describes the parties' rights, " (2) the opportunity to opt out, and (3) "a named plaintiff who adequately represents the absent plaintiffs' interests."[14]

         Here, there is no dispute Chan had adequate notice and did not exercise the right to opt out. The sole dispute is whether Chan can collaterally attack the Lebanon settlement for lack of adequate representation. We must decide, under full faith and credit, the standard for a collateral attack asserting lack of due process in a sister state's class settlement approval.

         In In re Estate of Tolson, Division Two of this court considered whether a Washington court was bound in a probate proceeding to a prior determination by a California court that decedent was domiciled in California at date of death.[15] Division Two concluded that while "enforcement of a judgment under [the full faith and credit clause] can be challenged by a showing that the court rendering judgment lacked jurisdiction[, ]... it is also well settled that if the jurisdictional question has been litigated in the rendering court, principles of res judicata attach, " and that question cannot be relitigated on collateral attack.[16]

         Our Supreme Court adopted a similar approach in OneWest Bank. FSB v. Erikson when considering "whether a Washington court must give full faith and credit to an Idaho court order encumbering Washington property."[17] "This case arose through OneWest Bank FSB's attempted foreclosure of Washington property based on a reverse mortgage that an Idaho court ordered through [the decedent's] conservatorship proceeding."[18] The decedent's daughter "challenged] the foreclosure, claiming the reverse mortgage [was] void because she was the actual owner of the property and the Idaho court had no jurisdiction to affect Washington property."[19]

         Our Supreme Court concluded, "[W]e cannot question [the decedent's] domicile because the personal jurisdiction issue was already litigated and decided in the Idaho conservatorship proceedings."[20] The court was persuaded the issue of jurisdiction was already litigated and decided because the record, chiefly the Idaho court's docket entries, revealed the decedent "objected to personal jurisdiction in the Idaho court, but the court denied his objection and exercised jurisdiction over him."[21]

Although we do not have the particular Idaho court order at issue, we have sufficient evidence that the Idaho court considered challenges to [the decedent's] domicile and ruled that it had jurisdiction to appoint a conservator over him.... There was enough evidence for the Idaho court to conclude it had sufficient contacts to exercise jurisdiction over [the decedent]. If [the daughter] wanted to challenge this determination, the Idaho court was the proper forum for doing so. She cannot collaterally attack that determination here.[22]

         Limited collateral review of a sister state court's finding of jurisdiction as provided by Tolson and OneWest Bank is consistent with nonbinding federal authority addressing the scope of collateral review in the context of a due process challenge to a foreign court's class settlement approval.

         In Epstein v. MCA. Inc., the Ninth Circuit addressed the effect of a Delaware state court judgment that approved a class action settlement releasing exclusively federal claims.[23] The Ninth Circuit rejected a broad, merit-based collateral review and held that collateral review is limited to "whether the procedures in the prior litigation afford the party against whom the earlier judgment is asserted a 'full and fair opportunity' to litigate the claim or issue."[24] Due process "does not require collateral second-guessing of those determinations and that review."[25]

         Consistent with Tolson, OneWest Bank, and Epstein, we hold Washington courts do not relitigate questions of due process previously raised, litigated, and decided by a sister state court when approving a class settlement. To determine whether a due process issue has been previously raised, litigated, and decided, we consider (1) whether the specific due process objection was before the sister state court, (2) whether the parties presented briefing on the objection, and (3) whether the sister state court ruled on the objection. If, after conducting this limited collateral review we are reassured the sister state court litigated and decided the same due process objection currently raised, we will not second guess the determination of that court.[26]

         Here, Chan reargues Dr. Kerb's contention that the class representative in Lebanon inadequately represented Washington providers, noting

there are fundamental differences between the Washington and Illinois consumer protection acts (including the public interest impact prong in Washington and the more restrictive requirement in Illinois of intent); between the remedies available in Washington and Illinois (e.g. treble damages versus punitive; rates of interest in judgments); and most importantly in the substantive laws underlying the [consumer protection act] claims of Washington and Illinois providers.[27]

         But the same objection concerning lack of adequate representation was before the Illinois trial court in Lebanon. Dr. Kerbs objected to the proposed settlement because, among other things, "Lebanon Chiropractic Clinic is an inadequate class representative for Washington providers and has a conflict of interests with Washington providers."[28]

         The parties in Lebanon presented briefing on that specific conflict of interest. In his ...


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