Title: St. Agnes v. Pacificare

State: california

Issuer: California Supreme Court

Document:

1 
Filed 12/18/03 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
SAINT AGNES MEDICAL CENTER, 
) 
 
 
) 
 
Plaintiff and Respondent, 
) 
 
 
) 
S111323 
 
v. 
) 
 
 
) 
Ct.App. 5 F039699 
PACIFICARE OF CALIFORNIA et al., 
) 
 
) 
Fresno County 
 
Defendants and Appellants. 
) 
Super. Ct. No. 01CECG01243 
___________________________________ ) 
 
This matter comes to us after the Court of Appeal reversed an order of the 
trial court that denied the petition of defendant PacifiCare of California 
(PacifiCare) to compel arbitration.  The central issue is whether PacifiCare waived 
its contractual right to arbitration pursuant to a clause contained in a health 
services contract with plaintiff Saint Agnes Medical Center (Saint Agnes).  
Relying on Bertero v. Superior Court (1963) 216 Cal.App.2d 213 (Bertero), the 
trial court found that a waiver occurred when PacifiCare filed a separate lawsuit 
that purported to repudiate the health services contract.  The Court of Appeal 
disagreed, finding Bertero unpersuasive in light of subsequent case law. 
We agree that Bertero’s analysis is outdated and should be disapproved to 
the extent it holds that a party’s repudiation of a contract categorically precludes it 
from invoking an arbitration clause therein.  We also find that the only reasonable 
inference to be drawn from the undisputed facts here is that PacifiCare did not 
waive its contractual right to arbitration and that therefore its petition to compel 
 
2 
arbitration should have been granted.  We affirm the judgment of the Court of 
Appeal. 
FACTUAL AND PROCEDURAL BACKGROUND 
In March 2001, PacifiCare filed a lawsuit in Los Angeles County Superior 
Court against Saint Agnes and others to resolve disputes about the parties’ 
contractual rights and obligations under a health services agreement entered in 
1994 (the 1994 HSA) and a second health services agreement entered in June 2000 
(the June 2000 HSA).1  PacifiCare’s complaint alleges that the June 2000 HSA is 
void ab initio due to a condition subsequent.  Among other things, the complaint 
seeks a judgment declaring the June 2000 HSA void ab initio and declaring its 
rescission, and enforcement of the parties’ rights under the 1994 HSA as if the 
June 2000 HSA never existed. 
In April 2001, Saint Agnes responded by filing the instant action in Fresno 
County against PacifiCare and others, seeking damages and other relief for 
PacifiCare’s wrongful conduct in allegedly breaching the June 2000 HSA. 
In June 2001, over PacifiCare’s objections, Saint Agnes prevailed on its 
motion to transfer the venue of PacifiCare’s Los Angeles lawsuit to Fresno 
County.2  Meanwhile, PacifiCare unsuccessfully moved to transfer the venue of 
Saint Agnes’s Fresno action to Orange County. 
As relevant here, the June 2000 HSA contains a clause providing that 
“[a]ny controversy, dispute or claim arising out of the interpretation, performance 
                                             
 
1  
The parties also refer to a settlement agreement, an amendment to the 1994 
HSA, and other instruments that may affect their contractual rights and 
obligations. 
2  
For ease of reference, we will continue to refer to this separate action as the 
Los Angeles action or the Los Angeles lawsuit. 
 
3 
or breach of this Agreement . . . shall be resolved by binding arbitration at the 
request of either party.”  The 1994 HSA contains no such clause. 
On July 25, 2001, PacifiCare sent a letter to Saint Agnes requesting that 
Saint Agnes voluntarily submit seven of the 11 causes of action in its Fresno 
complaint to arbitration on the ground that they arose out of the interpretation, 
performance or breach of the June 2000 HSA and therefore fell within the scope of 
that contract’s arbitration clause.  PacifiCare offered, on the same ground, to 
arbitrate six of the 14 causes of action in its Los Angeles lawsuit.  Saint Agnes 
responded it could not agree to arbitration at that time. 
On July 31, 2001, some four months after it initiated the Los Angeles 
lawsuit, PacifiCare filed a petition to compel arbitration of portions of the Fresno 
action and to stay proceedings.  PacifiCare grounded its petition in the California 
Arbitration Act (Code Civ. Proc., § 1280 et seq.; all further statutory references 
are to this code unless otherwise indicated), the Federal Arbitration Act (9 U.S.C. 
§ 1 et seq.) (the FAA), and the arbitration clause in the June 2000 HSA.  Saint 
Agnes opposed arbitration, contending that PacifiCare had waived its right to 
invoke arbitration by expressly repudiating the June 2000 HSA and seeking its 
judicial rescission on the ground it was void ab initio.  Saint Agnes also claimed 
that PacifiCare’s delay in seeking arbitration caused it to incur substantial legal 
fees and costs with respect to both the Fresno and Los Angeles lawsuits. 
The trial court denied the petition to compel arbitration, finding that 
PacifiCare’s Los Angeles complaint “show[ed] a clear attempt . . . to repudiate the 
June 2000 HSA” and that its filing of suit “was inconsistent with any intent to 
invoke arbitration.”  Because PacifiCare initiated the Los Angeles action before 
seeking to compel arbitration, the trial court concluded that Saint Agnes could 
seek relief in the courts, and that once it did so, PacifiCare “may not retract its 
repudiation of the contract and insist on arbitration.” 
 
4 
The Court of Appeal reversed the trial court’s judgment and remanded with 
directions to grant PacifiCare’s petition.  Concluding that the record “does not 
establish . . . as a matter of law [that] PacifiCare waived its right to compel 
arbitration,” the appellate court held the trial court abused its discretion when it 
failed to stay proceedings and order arbitration.  We granted Saint Agnes’s 
petition for review. 
DISCUSSION 
The Court of Appeal determined the record sufficiently establishes that the 
June 2000 HSA involves interstate commerce and therefore falls within the 
provisions of the FAA.  (See 9 U.S.C. §§ 1, 2.)  Saint Agnes does not dispute that 
determination, and PacifiCare expressly agrees with it.  Although the FAA 
generally preempts any contrary state law regarding the enforceability of 
arbitration agreements (Rosenthal v. Great Western Fin. Securities Corp. (1996) 
14 Cal.4th 394, 405), the federal and state rules applicable in this case are very 
similar. 
As relevant here, the FAA provides:  “A written provision in . . . a contract 
evidencing a transaction involving commerce to settle by arbitration a controversy 
thereafter arising out of such contract or transaction, or the refusal to perform the 
whole or any part thereof . . . shall be valid, irrevocable, and enforceable, save 
upon such grounds as exist at law or in equity for the revocation of any contract.”  
(9 U.S.C. § 2.)  A district court, upon being satisfied that the issue in controversy 
is arbitrable, “shall on application of one of the parties stay the trial of the action 
until such arbitration has been had in accordance with the terms of the agreement, 
providing the applicant for the stay is not in default in proceeding with such 
arbitration.”  (9 U.S.C. § 3.) 
In California, section 1281 similarly provides:  “A written agreement to 
submit to arbitration . . . a controversy thereafter arising is valid, enforceable and 
 
5 
irrevocable, save upon such grounds as exist for the revocation of any contract.”  
Section 1281.2 provides in relevant part:  “On petition of a party to an arbitration 
agreement alleging the existence of a written agreement to arbitrate a controversy 
and that a party thereto refuses to arbitrate such controversy, the court shall order 
the petitioner and the respondent to arbitrate the controversy if it determines that 
an agreement to arbitrate the controversy exists, unless it determines that: [¶] (a)  
The right to compel arbitration has been waived by the petitioner; or [¶] (b)  
Grounds exist for the revocation of the agreement. . . .” 
For purposes of this case, there is no dispute that authorized agents of Saint 
Agnes and PacifiCare signed the June 2000 HSA on their behalf, and no dispute 
that those entities, by signing that contract, agreed to its written terms, including 
the arbitration clause.3  The principal question is whether or not PacifiCare waived 
its contractual right to arbitration.4  We start by setting forth the rules governing 
waiver of arbitration agreements and the appropriate standard of review. 
                                             
 
3  
We note that the arbitration clause in the June 2000 HSA states it applies to 
disputes between Saint Agnes and Priority Health Services (another party to that 
contract), and that PacifiCare alleges in the Los Angeles action that the June 2000 
HSA was never effectively assigned to PacifiCare.  We express no opinion as to 
whether these circumstances might establish that PacifiCare failed to show it is a 
party to the agreement to arbitrate.  Although Saint Agnes raised this point in a 
footnote in its reply brief and again at oral argument, it had not petitioned for 
review of the issue in challenging the Court of Appeal’s judgment in favor of 
PacifiCare.  We reject the belated attempt to expand the scope of review at this 
juncture. 
4  
As our decisions explain, the term “waiver” has a number of meanings in 
statute and case law.  (Engalla v. Permanente Medical Group, Inc. (1997) 15 
Cal.4th 951, 982-983 (Engalla).)  While “waiver” generally denotes the voluntary 
relinquishment of a known right, it can also refer to the loss of a right as a result of 
a party’s failure to perform an act it is required to perform, regardless of the 
party’s intent to relinquish the right.  (Engalla, supra, 15 Cal.4th at p. 983; Platt 
Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315.)  In the arbitration context, 
 
(footnote continued on next page) 
 
6 
As mentioned, the FAA permits a party to obtain a stay of judicial 
proceedings pending arbitration unless such party is “in default” of that right.  (9 
U.S.C. § 3.)  “ ‘Although this principle of “default” is akin to waiver, the 
circumstances giving rise to a statutory default are limited and, in light of the 
federal policy favoring arbitration, are not to be lightly inferred.’ ”  
(Microstrategy, Inc. v. Lauricia (4th Cir. 2001) 268 F.3d 244, 249.)  Accordingly, 
a party who resists arbitration on the ground of waiver bears a heavy burden (id. at 
p. 251; Walker v. J.C. Bradford & Co. (5th Cir. 1991) 938 F.2d 575, 577), and any 
doubts regarding a waiver allegation should be resolved in favor of arbitration (see 
Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25). 
Our state waiver rules are in accord.  State law, like the FAA, reflects a 
strong policy favoring arbitration agreements and requires close judicial scrutiny 
of waiver claims.  (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 
782.)  Although a court may deny a petition to compel arbitration on the ground of 
waiver (§ 1281.2, subd. (a)), waivers are not to be lightly inferred and the party 
seeking to establish a waiver bears a heavy burden of proof.  (Christensen v. 
Dewor Developments, supra, 33 Cal.3d at p. 782; see also Doers v. Golden Gate 
Bridge etc. Dist. (1979) 23 Cal.3d 180, 189 (Doers).) 
Both state and federal law emphasize that no single test delineates the 
nature of the conduct that will constitute a waiver of arbitration.  (E.g., Engalla, 
supra, 15 Cal.4th at p. 983; Martinez v. Scott Specialty Gases, Inc. (2000) 83 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
“[t]he term ‘waiver’ has also been used as a shorthand statement for the 
conclusion that a contractual right to arbitration has been lost.”  (Platt Pacific, Inc. 
v. Andelson, supra, 6 Cal.4th at p. 315.) 
 
7 
Cal.App.4th 1236, 1249-1250; Adams v. Merrill Lynch Pierce Fenner & Smith 
(10th Cir. 1989) 888 F.2d 696, 701; Burton-Dixie Corp. v. Timothy McCarthy 
Construction Co. (5th Cir. 1971) 436 F.2d 405, 408; Brownyard v. Maryland 
Casualty Co. (D.S.C. 1994) 868 F.Supp. 123, 126.)  “ ‘In the past, California 
courts have found a waiver of the right to demand arbitration in a variety of 
contexts, ranging from situations in which the party seeking to compel arbitration 
has previously taken steps inconsistent with an intent to invoke arbitration 
[citations] to instances in which the petitioning party has unreasonably delayed in 
undertaking the procedure.  [Citations.]  The decisions likewise hold that the “bad 
faith” or “wilful misconduct” of a party may constitute a waiver and thus justify a 
refusal to compel arbitration.  [Citations.]’ ”  (Engalla, supra, 15 Cal.4th at p. 983, 
quoting Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-
426.) 
In Sobremonte v. Superior Court (1998) 61 Cal.App.4th 980, the Court of 
Appeal referred to the following factors:  “In determining waiver, a court can 
consider ‘(1) whether the party’s actions are inconsistent with the right to arbitrate; 
(2) whether “the litigation machinery has been substantially invoked” and the 
parties “were well into preparation of a lawsuit” before the party notified the 
opposing party of an intent to arbitrate; (3) whether a party either requested 
arbitration enforcement close to the trial date or delayed for a long period before 
seeking a stay; (4) whether a defendant seeking arbitration filed a counterclaim 
without asking for a stay of the proceedings; (5) “whether important intervening 
steps [e.g., taking advantage of judicial discovery procedures not available in 
arbitration] had taken place”; and (6) whether the delay “affected, misled, or 
prejudiced” the opposing party.’ ”  (Sobremonte v. Superior Court, supra, 61 
Cal.App.4th at p. 992, quoting Peterson v. Shearson/American Exp., Inc. (10th 
 
8 
Cir. 1988) 849 F.2d 464, 467-468.)  We agree these factors are relevant and 
properly considered in assessing waiver claims. 
Generally, the determination of waiver is a question of fact, and the trial 
court’s finding, if supported by sufficient evidence, is binding on the appellate 
court.  (Platt Pacific, Inc. v. Andelson, supra, 6 Cal.4th at p. 319; see also Engalla, 
supra, 15 Cal.4th at p. 983.)  “When, however, the facts are undisputed and only 
one inference may reasonably be drawn, the issue is one of law and the reviewing 
court is not bound by the trial court’s ruling.”  (Platt Pacific, Inc. v. Andelson, 
supra, 6 Cal.4th at p. 319.)  In the case before us, the essential facts are not 
disputed. 
As reflected by its order, the trial court’s waiver finding was based on the 
circumstances that (1) by seeking declaratory relief that the June 2000 HSA is 
void ab initio, “PacifiCare essentially contends and asserts that [the contract] is 
invalid and unenforceable” and (2) although PacifiCare did not initiate the Fresno 
action, it initiated the Los Angeles lawsuit and at no time sought to invoke the 
contractual right to arbitration before doing so. 
Saint Agnes agrees that a waiver occurred, observing that PacifiCare’s 
“total repudiation” of the June 2000 HSA, its initiation of the Los Angeles action, 
and its attempts to force litigation in the judicial venues it preferred, all amounted 
to conduct inconsistent with a right to arbitrate.  Saint Agnes also contends the 
Court of Appeal erred when it reversed the trial court’s order on the ground that 
Saint Agnes had not established prejudice resulting from PacifiCare’s delay in 
seeking to compel arbitration. 
We address these matters below. 
 
9 
A.  PacifiCare’s Challenge to the Validity of the June 2000 HSA 
The trial court’s order states:  “PacifiCare essentially contends and asserts 
that the [June 2000] HSA is invalid and unenforceable.”  PacifiCare acknowledges 
that it seeks to have the June 2000 HSA declared void ab initio and to have the 
parties’ rights under the 1994 HSA enforced as if the later contract never existed. 
Under the authority of Bertero, supra, 216 Cal.App.2d 213, the trial court 
ruled that PacifiCare waived its arbitration rights by repudiating the very contract 
from which those rights originated.  Bertero, apparently, has never been 
disapproved or criticized by any subsequent decision or secondary authority. 
In Bertero, an employee and his employer signed a written employment 
contract and a written modification of that contract, both of which contained an 
arbitration clause.  Although they adhered to the contractual terms for several 
years, the employer eventually sent the employee a letter claiming the modified 
contract was invalid and unenforceable.  The employee sued to enforce the 
contract and the employer sought to compel arbitration.  (Bertero, supra, 216 
Cal.App.2d at pp. 214-216.) 
Relying on Corbin on Contracts and decisions from other states, Bertero 
held that the employer’s repudiation of the entire employment contract deprived it 
of any right to rely on any provision of the contract, including its arbitration 
clause:  “[T]o say in . . . a letter that the contract is ‘invalid and unenforceable’ 
could mean only that it created no rights or duties which either party could stand 
upon.”  (Bertero, supra, 216 Cal.App.2d at p. 220.)  Bertero rejected the argument 
that the letter meant that the employee’s asserted right to contract benefits was 
invalid but that the employer’s right to arbitration was not invalid, remarking, “No 
more precise and emphatic language could have been chosen to notify Bertero that 
the company was declaring its independence without qualification or reservation.  
[¶] . . .  [¶] . . . When National said ‘the agreement’ was not enforceable, it was 
 
10 
saying that the portion relating to arbitration was not enforceable.”  (Id. at pp. 220-
221.)  “Thus it is not because National has repudiated its promise to pay Bertero’s 
salary, but because it has repudiated its promise to arbitrate, that Bertero was 
justified in resorting to the courts.”  (Id. at p. 221.) 
Although Bertero appears to support a waiver finding here, significant 
developments in the law have occurred since 1963 when that case was decided.  
Both federal and California law now hold that, in the absence of a specific attack 
on an arbitration agreement, such agreement generally must be enforced even if 
one party asserts the invalidity of the contract that contains it. 
Significantly, a few years after Bertero the United States Supreme Court 
decided Prima Paint v. Flood & Conklin (1967) 388 U.S. 395 (Prima Paint).  That 
decision recognized the principle that “except where the parties otherwise 
intend—arbitration clauses as a matter of federal law are ‘separable’ from the 
contracts in which they are embedded, and that where no claim is made that fraud 
was directed to the arbitration clause itself, a broad arbitration clause will be held 
to encompass arbitration of the claim that the contract itself was induced by 
fraud.”  (Prima Paint, supra, 388 U.S. at p. 402, quoting and thereafter adopting 
the view of the Second Circuit Court of Appeals.)  In concluding that federal 
courts may consider a claim of fraud in the inducement of an arbitration clause 
itself, but not a claim of fraud in the inducement of the contract generally, the high 
court sought to “honor the plain meaning of [the FAA]” and “also the 
unmistakably clear congressional purpose that the arbitration procedure, when 
selected by the parties to a contract, be speedy and not subject to delay and 
obstruction in the courts.”  (Prima Paint, supra, 388 U.S. at p. 404.) 
The logic of Prima Paint has led many courts, including this one, to hold 
that contractual arbitration clauses generally must be enforced where one of the 
parties seeks rescission of the entire contract on the basis that it allegedly was 
 
11 
induced by fraud, mistake, or duress, or where an alleged breach of a warranty or 
other promise justifies the aggrieved party in putting an end to the contract.  (E.g., 
Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 
35 Cal.3d 312, 319, 322-323 [fraudulent inducement claim is subject to 
arbitration]; Large v. Conseco Finance Servicing Corp. (1st Cir. 2002) 292 F.3d 
49, 53 [mere assertion of statutory right of rescission does not undo obligation to 
take rescission claim to arbitration]; Burden v. Check Into Cash of Kentucky, LLC 
(6th Cir. 2001) 267 F.3d 483, 489-490 [claim of illegality]; Coleman v. Prudential 
Bache Securities, Inc. (11th Cir. 1986) 802 F.2d 1350, 1352 [claims of fraudulent 
inducement and coercion]; Mesa Operating Ltd. Partnership v. Louisiana 
Intrastate Gas Corp. (5th Cir. 1986) 797 F.2d 238, 244 [claim of illegality]; see 
also Rosenthal v. Great Western Fin. Securities Corp., supra, 14 Cal.4th at p. 415, 
fn. 8.) 
As we explained, the central rationale of Prima Paint was that an 
arbitration clause is separable from other portions of a contract, such that fraud in 
the inducement relating to other contractual terms does not render an arbitration 
clause unenforceable, even when such fraud might justify rescission of the 
contract as a whole.  (Rosenthal v. Great Western Fin. Securities Corp., supra, 14 
Cal.4th at p. 416.)  “By entering into the arbitration agreement, the parties 
established their intent that disputes coming within the agreement’s scope be 
determined by an arbitrator rather than a court; this contractual intent must be 
respected even with regard to claims of fraud in the inducement of the contract 
generally.”  (Ibid.)  In light of Prima Paint and its progeny, we disapprove Bertero 
v. Superior Court, supra, 216 Cal.App.2d 213, to the extent it holds that a party’s 
assertion of the invalidity of an entire contract categorically waives that party’s 
right to arbitrate pursuant to a provision in that contract. 
 
12 
Here, the June 2000 HSA names PacifiCare and Saint Agnes as contracting 
parties and reflects the signatures of both parties’ agents.  Neither party challenges 
its assent to the June 2000 HSA; nor does either specifically challenge the 
arbitration clause contained therein.  Indeed, PacifiCare filed a declaration 
claiming it had performed its obligations according to the terms of the June 2000 
HSA prior to notifying Saint Agnes and others in March 2001 that it considered 
the contract terminated due to a condition subsequent.  Consequently, the record 
makes reasonably clear PacifiCare’s position that it could properly view the June 
2000 HSA as terminated or void due to an event transpiring after its effective date.  
On this record, Prima Paint’s recognition of the separable nature of arbitration 
agreements compels us to conclude that the arbitration clause in the June 2000 
HSA is sufficient to require arbitration of Saint Agnes’s claims relating to that 
contract. 
Seizing on PacifiCare’s allegations in the Los Angeles lawsuit that the June 
2000 HSA is void ab initio and PacifiCare’s concession that it seeks damages for 
breach of the 1994 HSA as if the later contract never existed, Saint Agnes argues 
this situation falls within an exception to the Prima Paint line of cases.  
Specifically, Saint Agnes points to authorities holding or recognizing that because 
arbitration is a matter of contract, a party cannot be required to submit to 
arbitration any dispute that it did not agree to so submit.  (E.g., Rosenthal v. Great 
Western Fin. Securities Corp., supra, 14 Cal.4th 394; Banner Entertainment, Inc. 
v. Superior Court (1998) 62 Cal.App.4th 348; Sandvik AB v. Advent International 
Corp. (3d Cir. 2000) 220 F.3d 99; Three Valleys Municipal Water District v. E.F. 
Hutton & Co., Inc. (9th Cir. 1991) 925 F.2d 1136.)  In those cases, the issue was 
not whether the underlying contract was merely voidable, but rather whether any 
contract had ever existed.  (Rosenthal v. Great Western Fin. Securities Corp., 
supra, 14 Cal.4th at pp. 416-417 [parties opposing arbitration claimed contracts 
 
13 
were void for fraud in their execution or inception]; Banner Entertainment, Inc. v. 
Superior Court, supra, 62 Cal.App.4th at pp. 358-361 [while evidence showed 
plaintiff’s oral agreement to specified dealings with defendant, it failed to show 
any agreement, oral or otherwise, to arbitrate]; Sandvik AB v. Advent International 
Corp., supra, 220 F.3d at p. 100 [party moving for arbitration alleged that 
individual who signed agreement on its behalf lacked authority to do so]; Three 
Valleys Municipal Water District v. E.F. Hutton & Co., Inc., supra, 925 F.2d at p. 
1138 [party resisting arbitration claimed contract was invalid because 
unauthorized individual signed it].) 
The decisions Saint Agnes cites have a logical rationale:  If a party can 
show that it did not know it was signing a contract, or that it did not enter into a 
contract at all, both the contract and its arbitration clause are void for lack of 
mutual assent.  (See Rosenthal v. Great Western Fin. Securities Corp., supra, 14 
Cal.4th at pp. 416-417; Banner Entertainment, Inc. v. Superior Court, supra, 62 
Cal.App.4th at pp. 358-359; Sandvik AB v. Advent International Corp., supra, 220 
F.3d at pp. 106-108; Three Valleys Municipal Water District v. E.F. Hutton & Co., 
Inc., supra, 925 F.2d at pp. 1140-1141.)  But that rationale has no application here 
because, notwithstanding PacifiCare’s use of certain legal terminology, neither 
PacifiCare nor Saint Agnes denies its knowing and voluntary agreement to the 
June 2000 HSA and the terms it contained.  Moreover, PacifiCare’s petition to 
compel arbitration reflects its apparent position that it considered itself bound to 
perform under the June 2000 HSA at least until March 2001, when it notified Saint 
Agnes that the contract was terminated.  Accordingly, this is not a case where 
mutual assent to the subject contract and its terms was lacking. 
In sum, we conclude that PacifiCare’s legal challenge to the validity of the 
June 2000 HSA is not inconsistent with an intent to invoke arbitration pursuant to 
 
14 
that contract.  Contrary to Saint Agnes’s contentions, PacifiCare’s repudiation as 
such does not amount to a waiver of its contractual arbitration rights. 
B.  PacifiCare’s Initiation of the Los Angeles Lawsuit 
Doers, supra, 23 Cal.3d 180, held that the mere filing of a lawsuit does not 
waive contractual arbitration rights.  (Doers, at pp. 185-188; see also Kalai v. 
Gray (2003) 109 Cal.App.4th 768, 774; Johnson v. Siegel (2000) 84 Cal.App.4th 
1087, 1099; accord, Merrill Lynch, Pierce, Fenner & Smith v. Lecopulos (2d Cir. 
1977) 553 F.2d 842, 845; Chatham Shipping Co. v. Fertex Steamship Corp. (2d 
Cir. 1965) 352 F.2d 291, 293; Realco Enterprises, Inc. v. Merrill Lynch, Pierce, 
Fenner & Smith (S.D.Ga. 1990) 738 F.Supp. 515, 518-519, and cases cited 
therein.)  Although Doers phrased the issue as one of “waiver,” we more recently 
characterized the critical issue there as “whether a party’s filing of a lawsuit in the 
face of an agreement to arbitrate was conduct so inconsistent with the exercise of 
the right to arbitration as to constitute an abandonment of that right.”  (Platt 
Pacific, Inc. v. Andelson, supra, 6 Cal.4th at p. 318.) 
In finding that the filing of a lawsuit, without more, does not result in a 
waiver (and is not so inconsistent with the exercise of the right to arbitration as to 
constitute an abandonment of that right), Doers disapproved several Court of 
Appeal decisions that had misinterpreted other precedents holding only that waiver 
occurs when the parties have litigated the merits of the arbitrable dispute.  (Doers, 
supra, 23 Cal.3d at pp. 185-188.)  Doers reiterated the rule that a waiver generally 
does not occur where the arbitrable issues have not been litigated to judgment.  
(Id. at p. 188.) 
Here, PacifiCare did not initiate the instant Fresno action, in which it seeks 
to compel arbitration.  PacifiCare did, however, initiate the Los Angeles action to 
have the June 2000 HSA declared void ab initio and to enforce its rights under the 
 
15 
1994 HSA, a contract that contains no arbitration clause and that allegedly governs 
the parties’ rights and obligations if the June 2000 HSA were to be found 
unenforceable.  Significantly, Saint Agnes’s arbitrable causes of action have not 
been litigated to judgment or judicially addressed on their merits.  Consistent with 
Doers, we conclude that PacifiCare’s mere filing of the Los Angeles action did not 
constitute a waiver of its right under the June 2000 HSA to seek arbitration in this 
Fresno action.  (Accord, American Recovery Corp. v. Computerized Thermal 
Imaging, Inc. (4th Cir. 1996) 96 F.3d 88, 95-96; Lawrence v. Comprehensive 
Business Services Co. (5th Cir. 1987) 833 F.2d 1159, 1164-1165; cf. Christensen 
v. Dewor Developments, supra, 33 Cal.3d at pp. 783-784 [waiver found where 
plaintiff knew of existence of arbitration clause and arbitrability of its claims, but 
filed suit without first demanding arbitration and pursued litigation through several 
demurrers for admitted purpose of obtaining verified pleadings from defendants 
that would reveal their legal theories, resulting in lost evidence].) 
Charles J. Rounds Co. v. Joint Council of Teamsters No. 42 (1971) 4 
Cal.3d 888 (Charles J. Rounds) does not compel us to hold otherwise.  In that 
case, the trial court had dismissed a plaintiff employer’s contract action against a 
defendant union on the ground that the dispute at issue was covered by an 
arbitration clause in the agreement.  As relevant here, the issue presented was 
whether “the relief granted was proper in this case—dismissal of the action—or 
whether a stay of judicial proceedings pending arbitration should have been 
granted.”  (Charles J. Rounds, supra, 4 Cal.3d at p. 894.)  We upheld the 
dismissal, observing that the only matter in dispute came within the scope of the 
arbitration clause, that the plaintiff had never attempted to pursue its arbitration 
remedy despite the defendant’s efforts to obtain arbitration, and that because the 
plaintiff sought relief that traditionally was within an arbitrator’s power to award, 
 
16 
dismissal of the action, rather than a mere stay of proceedings, was proper.  (Id. at 
p. 899.) 
Saint Agnes appears to read Charles J. Rounds as precluding any party who 
“repudiates” arbitration by filing a lawsuit from ever enforcing its contractual 
arbitration rights.  In particular, Saint Agnes relies on a passage in Charles J. 
Rounds stating that “where the only issue litigated is covered by the arbitration 
clause, and where plaintiff has not first pursued or attempted to pursue his 
arbitration remedy, it should be held that . . . plaintiff has impliedly waived his 
right to arbitrate.”  (Charles J. Rounds Co., supra, 4 Cal.3d at p. 899.) 
Preliminarily we observe that, to the extent the foregoing passage can be 
read to suggest that a party may waive its right to arbitration merely by filing a 
lawsuit without first requesting arbitration, our holding to the contrary in Doers, 
supra, 23 Cal.3d 180, controls.  (See Kalai v. Gray, supra, 109 Cal.App.4th at p. 
774.)  But Charles J. Rounds held only that dismissing the judicial action there, as 
opposed to staying it, was appropriate because the sole issue in dispute was 
properly subject to arbitration.  Viewed in context, Charles J. Rounds provides no 
support for denying arbitration of arbitrable claims in an action where, as here, the 
party seeking arbitration did not file the lawsuit in which arbitration is sought, but 
had initiated a separate lawsuit containing nonarbitrable causes of action.5  (See 
Charles J. Rounds, supra, 4 Cal.3d at pp. 898-899.) 
Nor can Saint Agnes credibly claim that PacifiCare waived its contractual 
right to arbitration by unequivocally refusing to arbitrate.  (See Local 659, 
                                             
 
5  
As indicated earlier, PacifiCare’s nonarbitrable causes of action seek 
damages and/or other relief against Saint Agnes and other parties arising out of the 
1994 HSA and other instruments having no arbitration clause but potentially 
affecting the parties’ rights and obligations if the June 2000 HSA is not enforced. 
 
17 
I.A.T.S.E. v. Color Corp. Amer. (1956) 47 Cal.2d 189 [waiver and repudiation 
found where plaintiff refused defendant’s repeated demands to comply with a 
contractual arbitration clause].)  As the record discloses, Saint Agnes never 
requested arbitration of the Fresno and the Los Angeles actions; Saint Agnes, in 
fact, rebuffed PacifiCare’s informal request and offer to arbitrate before the instant 
petition to compel arbitration was filed. 
C.  Prejudice from Participating in Litigation 
More than two decades ago, we observed that “[u]nder federal law, it is 
clear that the mere filing of a lawsuit does not waive contractual arbitration rights.  
The presence or absence of prejudice from the litigation of the dispute is the 
determinative issue under federal law.”  (Doers, supra, 23 Cal.3d at p. 188, fn. 
omitted, relying on Merrill Lynch, Pierce, Fenner & Smith v. Lecopulos, supra, 
553 F.2d at p. 845; Demsey & Associates v. S.S. Sea Star (2d Cir. 1972) 461 F.2d 
1009, 1018; Chatham Shipping Co. v. Fertex Steamship Corp., supra, 352 F.2d at 
p. 293.)  Our review of more recent federal authorities discloses that this rule 
remains largely intact.6 
                                             
 
6  
(E.g., Creative Solutions Group, Inc. v. Pentzer Corp. (1st Cir. 2001) 252 
F.3d 28, 32; American Recovery Corp. v. Computerized Thermal Imaging, Inc., 
supra, 96 F.3d at pp. 95-96; Walker v. J.C. Bradford & Co., supra, 938 F.2d at p. 
577; Fisher v. A.G. Becker Paribas Inc. (9th Cir. 1986) 791 F.2d 691, 694; Rush v. 
Oppenheimer & Co. (2d Cir. 1985) 779 F.2d 885, 887; Tenneco Resins, Inc. v. 
Davy Int’l, AG (5th Cir. 1985) 770 F.2d 416, 420-422; Creative 
Telecommunications, Inc. v. Breeden (D. Hawaii 1999) 120 F.Supp.2d 1225, 
1232; Realco Enterprises, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 
supra, 738 F.Supp. at p. 518; cf. Cabinetree of Wisconsin, Inc. v. Kraftmaid 
Cabinetry, Inc. (7th Cir. 1995) 50 F.3d 388, 390 [admittedly taking “the minority 
position” in holding that prejudice is not required to find waiver of right to 
arbitrate].) 
 
18 
In California, whether or not litigation results in prejudice also is critical in 
waiver determinations.  (Keating v. Superior Court (1982) 31 Cal.3d 584, 605, 
disapproved on other grounds, Southland Corp. v. Keating (1983) 465 U.S. 1; 
Doers, supra, 23 Cal.3d at pp. 188-189; Davis v. Continental Airlines, Inc. (1997) 
59 Cal.App.4th 205, 212.)  That is, while “ ‘[w]aiver does not occur by mere 
participation in litigation’ ” if there has been no judicial litigation of the merits of 
arbitrable issues, “ ‘ “waiver could occur prior to a judgment on the merits if 
prejudice could be demonstrated.” ’ ”  (Christensen v. Dewor Developments, 
supra, 33 Cal.3d at p. 782). 
Because merely participating in litigation, by itself, does not result in a 
waiver, courts will not find prejudice where the party opposing arbitration shows 
only that it incurred court costs and legal expenses.  (See Groom v. Health Net 
(2000) 82 Cal.App.4th 1189, 1197 [mere expense of responding to motions or 
other preliminary pleadings filed in court is not the type of prejudice that bars a 
later petition to compel arbitration]; accord, Crysen/Montenay Energy Co. v. Shell 
Oil Co. (2d Cir. 2000) 226 F.3d 160, 163.) 
Rather, courts assess prejudice with the recognition that California’s 
arbitration statutes reflect “ ‘a strong public policy in favor of arbitration as a 
speedy and relatively inexpensive means of dispute resolution’ ” and are intended 
“ ‘to encourage persons who wish to avoid delays incident to a civil action to 
obtain an adjustment of their differences by a tribunal of their own choosing.’ ”  
(Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9.)  Prejudice typically is found 
only where the petitioning party’s conduct has substantially undermined this 
important public policy or substantially impaired the other side’s ability to take 
advantage of the benefits and efficiencies of arbitration. 
For example, courts have found prejudice where the petitioning party used 
the judicial discovery processes to gain information about the other side’s case that 
 
19 
could not have been gained in arbitration (e.g., Berman v. Health Net (2000) 80 
Cal.App.4th 1359, 1366; Guess?, Inc. v. Superior Court (2000) 79 Cal.App.4th 
553, 558; Davis v. Continental Airlines, Inc., supra, 59 Cal.App.4th at p. 215); 
where a party unduly delayed and waited until the eve of trial to seek arbitration 
(e.g., Sobremonte v. Superior Court, supra, 61 Cal.App.4th at pp. 995-996); or 
where the lengthy nature of the delays associated with the petitioning party’s 
attempts to litigate resulted in lost evidence (e.g., Christensen v. Dewor 
Developments, supra, 33 Cal.3d at p. 784). 
The record in this case does not reflect that the parties have litigated the 
merits or the substance of Saint Agnes’s arbitrable claims, or that any discovery of 
those claims has occurred.  Nor is there any indication that PacifiCare used the 
Los Angeles and Fresno actions to gain information about Saint Agnes’s case that 
otherwise would be unavailable in arbitration.7  Finally, there appears no claim 
that PacifiCare’s actions have impaired Saint Agnes’s ability to have the arbitrable 
disputes in this action resolved fairly through arbitration. 
Saint Agnes, however, claims it has been prejudiced because it incurred 
substantial costs and expenses in opposing PacifiCare’s motion to change venue in 
this action, as well as PacifiCare’s unsuccessful attempt to block a venue change 
to Fresno in its Los Angeles action.8  This claim is not well taken. 
                                             
 
7  
With regard to discovery, we note that the June 2000 HSA reflects the 
parties’ agreement that “[c]ivil discovery for use in such arbitration may be 
conducted in accordance with the provisions of California law, and the 
arbitrator(s) selected shall have the power to enforce the rights, remedies, duties, 
liabilities and obligations of discovery by the imposition of the same terms, 
conditions and penalties as can be imposed in like circumstances in a civil action 
by a court of competent jurisdiction of the State of California.” 
8  
Although Saint Agnes submitted two declarations generally referring to the 
“substantial” and “significant” legal fees and costs it incurred, the declarations 
 
(footnote continued on next page) 
 
20 
Although we have found no California or United States Supreme Court 
decisions on point, other courts that have addressed this issue hold that a 
petitioning party does not waive its arbitration rights merely by seeking to change 
judicial venue of an action prior to requesting arbitration.  (E.g., American Heart 
Disease Prevention Foundation, Inc. v. Hughey (4th Cir. Feb. 4, 1997, No. 96-
1199) 1997 WL 42714, p. *5; Thompson v. Skipper Real Estate Co. (Ala. 1999) 
729 So.2d 287, 292-293; but see R.W. Roberts Construction Co., Inc. v. Masters & 
Co., Inc. (Fla.Dist.Ct.App. 1981) 403 So.2d 1114, 1115 [upholding trial court’s 
waiver finding without addressing the matter of prejudice].)  In so holding, those 
courts reason that a party is not required to litigate the issue of arbitration in an 
improper or inconvenient venue, and that a party’s position on venue does not 
necessarily reflect a position on arbitrability.  We agree with that reasoning, and 
find it consistent with California and federal case law holding that a waiver 
determination requires the consideration of all circumstances, including the 
absence or presence of prejudice. 
Under the foregoing authorities, PacifiCare did not waive or otherwise 
forfeit its contractual arbitration rights by seeking to transfer venue of the Fresno 
action or by opposing a venue change of the Los Angeles action.  Although 
PacifiCare did not prevail on its venue positions, there has been no finding that it 
acted wrongly in asserting them.  Moreover, both the Los Angeles and Fresno 
lawsuits involve nonarbitrable causes of action that belong in court; this 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
provided no details as to specific dollar amounts or time spent on the venue 
matters.  Other documents in the record, however, indicate that Saint Agnes 
incurred at least $4,460 on venue-related matters in the Los Angeles action. 
 
21 
circumstance further reinforces the conclusion that PacifiCare’s efforts to secure a 
particular judicial venue for each action are not so inconsistent with the exercise of 
the right to arbitration as to constitute a waiver of that right. 
Because PacifiCare’s venue-related efforts do not support an inference of 
waiver, it follows logically that the costs and expenses Saint Agnes incurred in 
responding to such efforts likewise do not support a finding of waiver or prejudice.  
(See Becker v. DPC Acquisition Corp. (S.D.N.Y. May 30, 2002, No. 00—Civ. 
1035) 2002 WL 1144066, p. *13.)9 
                                             
 
9  
Saint Agnes additionally makes an estoppel claim based on the same facts 
that predicate its claim of waiver.  We reject this claim.  As explained above, 
PacifiCare may properly invoke the arbitration clause while simultaneously 
contending the June 2000 HSA is not enforceable.  Moreover, we cannot say that 
PacifiCare should be estopped from asserting its arbitration rights based on its 
filing of the Los Angeles lawsuit and its venue efforts in the two actions because, 
among other things, both actions contain nonarbitrable claims. 
 
22 
CONCLUSION AND DISPOSITION 
When the facts are undisputed and only one inference may reasonably be 
drawn, the issue of waiver is one of law and the reviewing court is not bound by 
the trial court’s ruling.  (Platt Pacific, Inc. v. Andelson, supra, 6 Cal.4th at p. 319.)  
Here, the only reasonable inference we can draw from the record and its 
undisputed facts is that PacifiCare did not waive its contractual right to arbitration 
under the June 2000 HSA. 
The judgment of the Court of Appeal is affirmed. 
 
 
 
 
 
 
BAXTER, J. 
WE CONCUR: 
 
GEORGE, C.J. 
KENNARD, J. 
WERDEGAR, J. 
CHIN, J. 
BROWN, J. 
MORENO, J. 
 
23 
See next page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion Saint Agnes Medical Center v. PacifiCare of California 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 102 Cal.App.4th 647 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S111323 
Date Filed: December 18, 2003 
__________________________________________________________________________________ 
 
Court: Superior 
County: Fresno 
Judge: Stephen Joseph Kane 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
K & R Law Group, Konowiecki & Rank, Peter Roan, Karen S. Fishman, Cameron H. Faber, Samuel J. 
Woo; Greines, Martin, Stein & Richland, Timothy T. Coates and Peter O. Israel for Defendants and 
Appellants. 
 
Epstein Becker & Green, William A. Helvestine, Michael T. Horan and Elizabeth Arenson for California 
Association of Health Plans as Amicus Curiae on behalf of Defendants and Appellants. 
 
 
 
 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
Manatt, Phelps & Phillips, Craig J. De Recat, John F. Libby, Seth A. Gold, Jeffrey J. Maurer, Joanna S. 
McCallum, Terri D. Keville and Barry S. Landsberg for Plaintiff and Respondent. 
 
Haight, Brown & Bonesteel, Roy G. Weatherup, J. Alan Warfield; Marschak, Shulman, Hodges & Bastian, 
Ronald S. Hodges, J. Ronald Ignatuk and Michael S. Kelly for Alfonso G. De Grezia and Malynda A.      
De Grezia as Amici Curiae on behalf of Plaintiff and Respondent. 
 
 
 
 
24 
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Peter O. Israel 
Greines, Martin, Stein & Richland 
5700 Wilshire Boulevard, Suite 375 
Los Angeles, CA  90036 
(310) 859-7811 
 
Barry S. Landsberg 
Manatt, Phelps & Phillips 
11355 Olympic Boulevard 
Los Angeles, CA  90064 
(31) 312-4000