Source: https://caselaw.findlaw.com/ca-court-of-appeal/1508459.html
Timestamp: 2019-04-21 17:10:20+00:00

Document:
YOUNG SEOK SUH et al., Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; CHA Hollywood Medical Center et al., Real Parties in Interest.
Cohen & Lord, Bruce M. Cohen, Jonathan F. Golding; John D. Harwell, for Petitioners. No appearance for Respondent. Lim, Ruger & Kim, Bruce G. Iwasaki and Lisa J. Yang for Real Parties In Interest, CHA Hollywood Medical Center, L.P. dba Holllywood Presbyterian Medical Center. Law Offices of Timothy B. McCaffrey, Jr. and Timothy B. McCaffrey, Jr., for Real Parties In Interest, H.P. Anesthesia Medical Group, Inc., Hyung R. Shin, Sung T. Kim, Romeo Velasco, and Sung H. Kim.
Petitioners and plaintiffs Young Seok Suh and Yongkew Chung (plaintiffs) are anesthesiologists who were with a medical group that entered into two anesthesiology contracts with a hospital. They seek review of an order by the trial court compelling arbitration. We grant the petition, holding that plaintiffs did not agree to arbitrate disputes relating to one of the contracts and that the terms of the arbitration clause in the other contract are, because of the applicable rules limiting damage remedies, unconscionable, rendering the agreement to arbitrate unenforceable.
Plaintiffs were anesthesiologists on the medical staff of real party in interest and defendant Hollywood Presbyterian Medical Center, L.P. CHA Hollywood Medical Center, L.P.,1 which does business under the name “Hollywood Presbyterian Medical Center,” operated the Hospital. In 2005, plaintiffs formed a group, “HP Anesthesia LLC” (HP LLC), with defendants and real parties in interests, Hyung R. Shin, Sung T. Kim, Romeo Velasco and Sung H. Kim,2 all of whom are anesthesiologists. In 2006, HP LLC entered into an “Agreement for Anesthesiology Department Coverage” (2006 Agreement) with the Hospital “to provide all anesthesiology and pain management services at [the Hospital] and to supervise the operation of the Department.” Plaintiffs became bound to that agreement by signing a “Waiver and Agreement” form.
A week later, the doctors in HP LLC formed HP Inc. to succeed HP LLC as a party to the 2006 Agreement, and the doctors, along with others, became shareholders of the corporation. The 2006 Agreement was assigned by HP LLC to HP Inc.
Plaintiffs allege that in 2008, they were removed from the Hospital Anesthesiology Department schedule because of their age and their national origin. They contend that the defendant doctors hired a number of younger doctors. In 2008, HP Inc. and the Hospital entered into a new agreement for Anesthesiology Department coverage, again providing for anesthesiology services (2008 Agreement). Plaintiffs assert they did not sign or accede to that agreement and did not see or receive it until months after it had been executed. Plaintiffs allege that after their removal from the schedule, they did not practice medicine at the Hospital.
Plaintiffs, in their complaint, allege the following causes of action: national origin discrimination against Hospital and HP Inc. in violation of Government Code section 12940, subdivision (a) (first); age discrimination against Hospital and HP Inc. in violation of Government Code section 12940, subdivision (a) (second); aiding and abetting age “and/or” national origin discrimination against the Hospital in violation of Government Code section 12940, subdivision (i) (third); aiding and abetting age “and/or” national origin discrimination against HP Inc. and the individual doctor defendants in violation of Government Code section 12940, subdivision (i) (fourth); national origin discrimination in violation Civil Code section 51 et seq. against Hospital and HP Inc. (fifth); retaliation in violation of Government Code section 12940 et seq. against Hospital (sixth); retaliation in violation of Health and Safety Code section 1278.5 against Hospital (seventh); denial of the vested right to practice medicine against Hospital (eighth); intentional contract interference against Hospital (ninth); intentional prospective economic advantage interference against Hospital (tenth); intentional prospective economic advantage interference against HP Inc. and the individual doctor defendants (eleventh); contract breach against the individual doctor defendants (twelfth); contract breach against HP Inc. (thirteenth); fiduciary duty breach against the individual doctor defendants (fourteenth); negligence against the individual doctor defendants (fifteenth cause of action); accounting against HP Inc. and the individual doctor defendants (sixteenth); declaratory relief against Hospital (seventeenth); and declaratory relief against all named defendants (eighteenth).
Plaintiffs filed three declarations in opposition to the petition to compel arbitration. Suh described his age and ancestry, the Hospital's organization, and the organization of HP LLC. Suh stated he never received a copy of the 2006 Agreement, but was provided with the waiver document by which he acceded to the 2006 Agreement. Suh was told that if he did not execute the May 2006 waiver document, he would not be permitted to practice anesthesiology at the Hospital. Suh only saw the 2006 Agreement after he signed the waiver form, and he was never advised of the arbitration clause or its consequences. He contended that the American Health Lawyers Association Alternative Dispute Resolution Service Rules of Procedure for Arbitration (AHLA Rules), provided for in the 2006 Agreement, would result in a waiver of his rights and remedies to recover consequential, incidental, and punitive damages; HP LLC was not legally qualified to practice medicine, rendering the 2006 Agreement illegal; and he did not sign and was not provided a copy of the 2008 Agreement.
Suh further declared that among the original shareholders of HP Inc. were plaintiffs, the Kims, Shin, and Velasco. The original shareholders of HP Inc. never entered into a written shareholder's agreement, and no officers or directors were actually elected. Suh denied being a director, officer, or employee of HP Inc. Commencing in May 2006, he rendered anesthesiology services at the Hospital as provided for in the 2006 Agreement, for which services he was compensated. He included facts relating to his allegations of discrimination, including that he was removed from the Hospital's Anesthesia Department schedule. He also alleged other acts of malfeasance.
In his declaration, Chung reiterated many of the points raised by Suh. Chung declared that he had not seen the 2006 Agreement until after he signed the waiver form and did not sign, nor was he provided with, the 2008 Agreement until September 2008. Chung further declared that on May 1, 2008, he was removed from the Anesthesia Department schedule.
During the hearing, the trial court (respondent) stated it would grant defendants' petition to compel arbitration, but then raised the issue of severing the use of the AHLA Rules, apparently because of the substantive unconscionability question. As noted, the AHLA Rules barred certain remedies.
A series of proposed orders and objections ensued. Plaintiffs argued that they never agreed to use the JAMS Rules. Plaintiffs, in objecting to the proposed order granting the petition to compel arbitration, stated, “[C]ounsel stated on the record that the Plaintiffs would not waive their right to contest the Court's ruling, but if the Court was going to issue an order and force the Plaintiffs to arbitrate, the Plaintiffs would prefer to arbitrate under the JAMS rules.” The last filing with the respondent court concerning the written order was filed on April 15, 2009.
Plaintiffs filed the petition in this proceeding on September 28, 2009. In their petition, plaintiffs contend that no arbitration agreement existed from May 19, 2008 (the date of the 2008 Agreement) to the present; the 2006 Agreement was illegal and could not be assigned or enforced; defendants concede the 2008 Agreement superseded the 2006 Agreement resulting in a novation; and the arbitration clause in the 2006 Agreement is substantively and procedurally unconscionable. Defendants contend that plaintiffs consented to arbitration under the 2006 agreement because they signed the waiver documents; plaintiffs' claim that they never bothered to read the arbitration provision is not a defense to its enforceability; plaintiffs are bound by the arbitration provisions even though they were nonsignatories; the 2008 Agreement was executed after the 2006 Agreement had expired; the 2006 Agreement is neither procedurally nor substantively unconscionable; plaintiffs, as nonsignatories to the 2008 Agreement, are nevertheless bound by that agreement because of their status in HP Inc. and because they accepted the benefits of the 2008 Agreement; to the extent the AHLA Rules provided for in the 2006 Agreement are unconscionable, they could be severed; and plaintiffs agreed that the JAMS Rules could be utilized.
Defendants demurred to the petition on the ground that no writ may issue because plaintiffs are obligated to arbitrate. This court may, however, issue a writ to set aside an order compelling arbitration. (Zembsch v. Superior Court (2006) 146 Cal.App.4th 153, 161 [“this court may properly review the trial court's order compelling arbitration by writ of mandate”].) Because we grant the petition for a writ, we overrule the demurrer.
Defendants claim that plaintiffs, although nonsignatories, are bound by the 2008 Agreement as third party beneficiaries, agents or employees of HP Inc., or as having accepted the benefits of the 2008 Agreement. There is no evidence, however, that plaintiffs actually derived any benefits either as a third party beneficiary or otherwise. The uncontradicted evidence is that by the time of the 2008 Agreement and thereafter, plaintiffs were not obtaining any work at the Hospital. That they were employees of HP Inc. does not mean they were bound by the arbitration clause in an agreement between HP Inc. and the Hospital. This is not a situation in which individual defendants were agents of the corporate defendant, were alleged to be parties to the agreement, and sought the benefit of the arbitration clause in the contract. (See Dryer v. L.A. Rams, supra, 40 Cal.3d at p. 418.) Plaintiffs did not sign the 2008 Agreement on behalf of HP Inc. as principals and did not benefit from that agreement. (See RN Solutions, Inc. v. Catholic Healthcare West, supra, 165 Cal.App.4th at p. 1520.) They are not otherwise bound by the contract under agency principles.
Unlike in Harris v. Superior Court, supra, 188 Cal.App.3d 475, relied upon by defendants, this case is not one for medical malpractice. In that case, the court held that a physician was bound by the arbitration provision in a contract between his medical group and the health plan in connection with a malpractice action because as an employee of the medical group, he had treated the plaintiff patient and thus voluntarily had accepted the benefits under the contract. Here, plaintiffs are suing the medical group and the Hospital rather than defending a medical malpractice case brought by patients against them and the medical group.
Defendants also rely upon Keller Constr. Co. v. Kashani (1990) 220 Cal.App.3d 222. There, a general partner of a limited partnership signed a contract containing an arbitration clause. Unlike in this case, the general partner himself signed the agreement and was legally bound in his capacity as a general partner. Here, plaintiffs are shareholders of a corporation, and the agreement was not signed by them individually or on behalf of the corporation. Therefore, the 2008 Agreement provides no basis for compelling arbitration in this case.
The 2006 Agreement provides for arbitration “in accordance with the [AHLA Rules] and applying the laws of the State.” Those rules prohibit an award of “consequential, exemplary, incidental, punitive or special damages” except in tort cases “unrelated to employment or termination of employment.” The rules specify, “In an action arising from a tort unrelated to employment or the termination of employment, the arbitrator may not award consequential, exemplary, incidental, punitive or special damages against a party unless the arbitrator determines, based on the record, that there is clear and convincing evidence that the party against whom such damages are awarded is guilty of conduct evidencing an intentional or reckless disregard for the rights of another party or fraud, actual or presumed.” Thus, there is an absolute bar to a claim for consequential, punitive, incidental or special damages in a case related to employment. The rules also require each party to share in the arbitration expenses, empower the arbitrator to assess expenses against any of the parties, place certain limitations on discovery, and do not compel a reasoned opinion or findings by the arbitrator.
Here, there are claims for breach of contract, an accounting, and declaratory relief to which the limitations in the AHLA Rules apply. There are also statutory claims to which the limitations may apply. Some of the tort claims are related to employment and are also subject to the AHLA Rules limitations. Thus, the AHLA Rules limitations would impact many of the claims.
The severe AHLA Rules limitations on remedies are substantively unconscionable. (Harper v. Ultimo (2003) 113 Cal.App.4th 1402, 1407-1408; Stirlen v. Supercuts (1997) 51 Cal.App.4th 1519, 1539-1540; see also Armendariz, supra, 24 Cal.4th at pp. 104, 113-114; Gelow v. Central Pacific Mortg. Corp. (E.D.Cal.2008) 560 F.Supp.2d 972, 981 [for arbitration clause in employment contract to be “lawful, it must allow for all types of relief that a court could order”].)4 Defendants do not dispute this conclusion. These limitations are significant elements of the contract. By limiting the arbitrator's power to provide various remedies, plaintiffs may be left with the possibility of having to seek relief for the excluded remedies in a separate judicial proceeding.
There is also uncontradicted evidence of procedural unconscionability. The arbitration clause is on page 13 of the 2006 Agreement in the same typeface as the balance of the agreement. Plaintiffs declared that they were required to sign a printed form “Waiver and Agreement” binding them to the 2006 Agreement without having the opportunity to see that agreement and as a condition of practicing anesthesiology at the Hospital. The offending rules were not provided to them. This uncontradicted evidence establishes procedural unconscionability. (See Harper v. Ultimo, supra, 113 Cal.App.4th at pp. 1406-1407 [referencing restrictive rules without providing them].) Accordingly, weighing the substantive and procedural unconscionability, we conclude that the arbitration provision in the 2006 Agreement is unconscionable.
Defendants did not specifically argue that the restriction on remedies in the AHLA Rules should be severed from the rules, and there is no authority permitting such a severance. The trial court was vague in what actually was being severed by stating “to the extent [the agreement] contains any unconscionable provision, that provision is hereby severed.” In any event, the AHLA Rules limitation of remedies clause practically cannot be severed. The AHLA Rules specify that its entire framework is a cost containment measure of which the limitation of liability is a prime feature. Those rules specify in the introduction that, “The healthcare industry is under great pressure to contain costs in every way possible.” The rules provide that “[t]he parties shall be bound by these Rules whenever they have agreed in writing to arbitration by the Service or under the Rules.” A principle aspect of the rules is the limitation on the arbitrator to award consequential and punitive damages.
The limitation on damages in this case is so egregious and so draconian that it should not be permitted to be severed. Otherwise, parties will be encouraged to insert such clauses, with the only sanction being the removal of the clause. (Armendariz, supra, 24 Cal.4th at p. 124, fn. 13.) That the AHLA Rules limitation of remedy clause was buried in the arbitration clause, rather than being a separate provision, suggests it was not intended to be easily reviewed. It is also telling that as reflected in the 2008 Agreement, by 2008, the parties did not even impose the AHLA Rules, but rather provided for JAMS Rules.
It is the 2008 Agreement, to which plaintiffs are not bound, that provided for arbitration utilizing the JAMS Rules. An oral statement by plaintiffs' counsel about a willingness to arbitrate under JAMS Rules if the arbitration was compelled (reserving the position that arbitration could not be compelled) does not constitute an agreement by plaintiffs to arbitrate or to arbitrate under those rules. (Code Civ. Proc., § 1281 [requiring written agreement]; Magness Petroleum Co. v. Warren Resources of Cal., Inc ., supra, 103 Cal.App.4th at pp. 907, 909 [neither “oral agreement to arbitrate” nor “oral modification of written arbitration agreement to arbitrate” enforceable unless “reflected in a written court order or other record”].) Plaintiffs did not unequivocally enter into any stipulation in court to arbitrate under the JAMS Rules. Accordingly, we conclude that the arbitration clause in the 2006 Agreement is not enforceable.
The Petition for Writ of Mandate is granted. The demurrer is overruled. Respondent court shall set aside its order compelling arbitration and shall deny defendants' petition to compel arbitration. Plaintiffs are awarded their costs.
1. CHA Hollywood Medical Center, L.P. and the hospital it operated are referred to as the Hospital.
2. All of the real parties in interest are referred to as defendants.
3. We refer to these rules as the JAMS Rules.
We concur: TURNER, P.J., and KRIEGLER, J.

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 § 1281
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