Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00520/USCOURTS-caed-2_07-cv-00520-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1442 Petition for Removal- Breach of Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

CHARLES SCHLEGEL,

No. 2:07-CV-00520-MCE-KJM

Plaintiff,

v. MEMORANDUM AND ORDER

KAISER FOUNDATION HEALTH PLAN,

INC., a California

corporation, KAISER FOUNDATION

HOSPITALS, a California

corporation; THE PERMANENTE

MEDICAL GROUP, INC., a 

California corporation; and

DOES 1 through 100, inclusive,

Defendants.

----oo0oo----

Plaintiff Charles Schlegel (“Plaintiff”) has sued Defendants

Kaiser Foundation Health Plan, Inc., Kaiser Foundation Hospitals,

and The Permanente Medical Group, Inc. (hereinafter collectively

referred to as “Kaiser”) on the grounds that Kaiser failed to

properly respond to his need for an organ transplant. 

Plaintiff’s complaint includes causes of action for 1) Breach of

Duty of Good Faith and Fair Dealing; 2) Breach of Contract; 3)

Negligence; 4) Fraud; 5) Negligent Misrepresentation; 

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 Because oral argument will not be of material assistance, 1

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h).

2

6) Negligent Infliction of Severe Emotional Distress; and

7) Intentional Infliction of Severe Emotional Distress. 

Plaintiff’s complaint was initially filed in state court on

February 9, 2007 and was subsequently removed to this Court on

grounds that the claims submitted thereon were preempted by the

provisions of the Employee Retirement Income Act of 1974,

29 U.S.C. § 1001 et seq. (“ERISA”). Kaiser now seeks to compel

arbitration of Plaintiff’s claims and to stay this action pending

arbitration. For the reasons set forth more fully below,

Kaiser’s motion to compel arbitration is DENIED.1

BACKGROUND

In 2001, Plaintiff Charles Schlegel enrolled in an

individual health insurance policy with Kaiser. In June 2003,

Plaintiff was diagnosed with kidney problems and was informed

that a kidney transplant was necessary for him to survive. 

Kaiser did not operate a kidney transplant program at that time. 

Kaiser referred Plaintiff to the University of California Davis

Medical Center who placed him on the national kidney transplant

list.

In June 2004, one year after Plaintiff’s diagnosis, Kaiser

decided to open its own kidney transplant center. All Kaiser

members were told to leave their current transplant center and

enroll with Kaiser’s center. 

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In 2006, Kaiser closed its center, reportedly due to problems

transferring patients. Upon investigation, the State of

California found numerous Health and Safety Code violations for

which Kaiser paid several million dollars. Plaintiff alleges

that Kaiser’s mishandling of its transplant program denied him

the opportunity to obtain a transplant operation and/or

significantly lengthened the time he will have to wait for a

kidney to become available.

In addition to the enrollment form executed in 2001,

Plaintiff also signed enrollment forms in November 2005, January

2006, and November 2006. All four forms contained arbitration

clauses. Kaiser claims that these forms either meet the

substantive requirements of California Health & Safety Code

§ 1363.1 or are exempt therefrom.

STANDARD

Kaiser brings this Motion to Compel Arbitration under the

Federal Arbitration Act, 9 U.S.C. § 2 (“FAA”), arguing that the

arbitration clauses contained within its enrollment agreements

are governed by the FAA and that said clauses constitute an

agreement between the parties to submit their dispute to binding

arbitration. Plaintiff does not dispute the procedural

applicability of the FAA, which mandates enforcement of

arbitration provisions in a transaction involving commerce. 

9 U.S.C. § 2. 

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4

Kaiser’s membership agreements have previously been deemed

sufficiently linked to interstate commerce to invoke application

of the FAA. See Toledo v. Kaiser Permanente Medical Group,

987 F.Supp. 1174, 1180 (N.D. Cal 1997). 

Kaiser’s right to compel arbitration is also protected by

California law, which has expressed a ‘strong public policy in

favor of arbitration as a speedy and relatively inexpensive means

of dispute resolution.’” Moncharsh v. Heily & Blase, 3 Cal.4th 1,

9 (1992). Upon the filing of a petition to compel arbitration,

the court “must determine whether [an] agreement exists and, if

any defense to its enforcement is raised, whether it is

enforceable.” Rosenthal v. Great Western Financial Securities

Corp., 14 Cal.4th 394, 413 (1996). Because § 1281.2 requires an

agreement to arbitrate as a prerequisite to granting the

petition, the petitioner bears the burden of proving the

existence of a valid agreement by a preponderance of the

evidence. Id. If the opposing party raises a defense to

enforcement, that party bears the burden of producing evidence of

the defense and proving any necessary facts by a preponderance of

the evidence. Id.

ANALYSIS

On September 19, 1994, California added § 1363.1 to the

Health and Safety Code “due to a concern ‘some health care

service plans fail to adequately advise prospective enrollees

that terms of the plan restrict or waive the right to a jury

trial in medical malpractice cases.’” 

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Medeiros v. Superior Court, 146 Cal.App.4th 1008, 1017 (2007). 

“The plain language of section 1363.1 is clear.” Id. at 1018. A

health plan that wishes to impose arbitration on subscribers

“must make the mandatory disclosures.” Id. The disclosure

requirements of § 1363.1 “are necessary to create an enforceable

arbitration provision in a health service plan, regardless of

whether the subscriber actually had notice of the term requiring

arbitration.” Id. at 1019.

California Health and Safety Code § 1363.1 requires any

health care service plan requiring binding arbitration to state

“in clear and understandable language,” in a “prominently

displayed,” “separate article,” immediately above the signature

line, that the enrollee is waiving his or her right to a jury

trial, using substantially the wording in subdivision (a) of

California Code of Civil Procedure § 1295.

“‘Prominent’ is defined as ‘standing out or . . . readily

noticeable.’” Robertson v. Health Net of California, Inc., 132

Cal.App.4th 1419, 1429 (2005). An arbitration provision that

“does not stand out and [is] not readily noticeable from” other

provisions is not prominently displayed. Malek v. Blue Cross of

California, 121 Cal.App.4th 44, 61 (2004). Placing the

arbitration clause immediately before the signature line does not

by itself fulfill the requirement of prominence. Imbler v.

Pacificare of California, Inc., 103 Cal.App.4th 567, 579 (2002). 

Further, placing the disclosure in a separate article and using

bold typeface for the title of the provision do not by themselves

fulfill the requirement of prominence. Robertson, 132

Cal.App.4th at 1429.

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California Health and Safety Code § 1363.1 applies to all

health care consumers, including those who enroll in an employee

group plan, and not just individual subscribers. Medeiros, 146

Cal.App.4th at 1017. Non-compliance with § 1363.1 renders an

arbitration provision in an enrolment form unenforceable. Malek,

121 Cal.App.4th at 62-63.

It is undisputed that Plaintiff signed the forms in

question. It is equally undisputed that all four forms contain

arbitration clauses which may require arbitration of the current

dispute. That the forms were legible when signed is presumed for

the purposes of this order. Thus the primary issue before this

Court is whether the enrolment forms signed by Plaintiff comply

with the requirements of § 1363.1.

1. Compliance with Statutory Disclosure Requirements

Apart from the issue of legibility, none of the arbitration

provisions in the four enrollment forms signed by Plaintiff stand

out or are readily noticeable from other provisions. While all

the arbitration provisions immediately precede the signature

line, the font size used in each is the same as, or smaller than,

the other text in the form. The font size itself appears to be

9-point or smaller. Further, none of the arbitration provisions

are in bold, indented, placed in all capital lettering, set off

with conspicuous blank space, or otherwise distinguished from the

remainder of the text in the form. 

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 Because this Court finds that none of the four forms 2

contain arbitration clauses that comply with the requirements of

California Health & Safety Code § 1363.1, the issue of which of

the enrollment forms are relevant to this dispute need not be

decided for the purposes of this Order.

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The arbitration provisions therefore are not prominently

displayed and thus the forms do not comply with the requirements

of California Health & Safety Code § 1363.1 . Accordingly, the 2

arbitration provisions are unenforceable.

2. Scope of § 1363.1

California Health and Safety Code § 1363.1 states that it

applies to “[a]ny health care service plan.” Plan members that

enroll via a form received from an employer are afforded no less

protection than those that enroll directly with an insurance

company. Medeiros, 146 Cal.App.4th at 1018. “If an employerprepared form does not provide the health plan with an

appropriate ‘vehicle’ to make the required disclosures then the

health plan must provide its own form for this purpose.” Id. 

The four forms signed by the Plaintiff are all self-described as

being for enrollment in a “plan” for health care and are

therefore “health care service plans” within the meaning of §

1363.1. Thus all of the forms are subject to the disclosure

requirements of that section.

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CONCLUSION

Based on the foregoing, this Court finds that the enrollment

forms do not comply with the requirements of California Health &

Safety Code § 1363.1. The arbitration provisions in the forms

are therefore unenforceable. Accordingly, Kaiser’s Motion to

Compel Arbitration is DENIED.

IT IS SO ORDERED.

Dated: August 30, 2007

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

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