Source: https://scocal.stanford.edu/opinion/engalla-v-permanente-medical-group-inc-31785
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Engalla v. Permanente Medical Group, Inc. - 15 Cal.4th 951 S048811 - Mon, 06/30/1997 | California Supreme Court Resources
Home > Opinions > Engalla v. Permanente Medical Group, Inc.
Citation 15 Cal.4th 951
Engalla v. Permanente Medical Group, Inc. (1997) 15 Cal.4th 951 , 64 Cal.Rptr.2d 843; 938 P.2d 903
[No. S048811.
Jun 30, 1997.]
David E. Feller, Robert C. Post, Gail K. Hillebrand, Stefan M. Rosenzweig, David Link, Amy Bach, Anderson, Kill, Olick & Oshinsky, Eugene R. Anderson, Bennett Ellenbogen, Deborah M. Mongan, The Sturdevant Law Firm, James C. Sturdevant, Ann Saponara, McGuinn, Hillsman & Palefsky, Cliff Palefsky and Keith Ehrman as Amici Curiae on behalf of Plaintiffs and Respondents and Real Parties in Interest. [15 Cal.4th 960]
We conclude that there is indeed evidence to support the trial court's initial findings that Kaiser engaged in fraudulent conduct justifying a denial of its petition to compel arbitration, but we further conclude that questions of fact remain to be resolved by the trial court before it can be determined whether Kaiser's conduct was actually fraudulent. Similarly, there is a factual question as to whether Kaiser's actions constituted a waiver of its right to compel arbitration. We accordingly reverse the judgment of the Court of Appeal and direct it to remand the case to the trial court for such factual determinations. As will appear, although we affirm the basic policy in favor of enforcement of arbitration agreements, the governing statutes place limits on the extent to which a party that has committed misfeasance in the performance of such an agreement may compel its enforcement. [15 Cal.4th 961]
On or about May 31, 1991, Engalla and members of his immediate family served on Kaiser a written demand for arbitration of their claims that Kaiser [15 Cal.4th 962] health care professionals had been negligent in failing to diagnose Engalla's lung cancer sooner. The Engallas' attorney, David Rand, correctly believed his clients were required to do so pursuant to the Service Agreement which was in effect at the time. The arbitration clause contained in the Service Agreement described the process for initiating a claim, the requirement that three arbitrators be used, and the time frame within which the arbitrators were to be selected. In this regard, section 8.B. of the Service Agreement provides that each side "shall" designate a party arbitrator within 30 days of service of the claim and that the 2 party arbitrators "shall" designate a third, neutral arbitrator within 30 days thereafter. fn. 3 Section 8.C. sets forth general provisions concerning the arbitration of claims and incorporates applicable California law, including the California statute of limitations, the California Code of Civil Procedure provisions relating to arbitration, and the California Medical Injury Compensation Reform Act of 1975 (MICRA).
The fact that Kaiser has designed and administers its arbitration program from an adversarial perspective is not disclosed to Kaiser members or [15 Cal.4th 963] subscribers. It is not set forth in the arbitration provision itself, or in any of Kaiser's publications or disclosures about the arbitration program, and it was unknown to Engalla's employer, who signed the Service Agreement on his behalf. The employer's representative, Theodomeir Roy, read the provisions of the Service Agreement, and believed that the arbitration process would be equally fair to both the employee-subscriber and to Kaiser, and that it would allow employees to resolve disputes quickly and without undue expense. His expectation in that regard was consistent with the intent of Kaiser's general counsel, Scott Fleming, who originally drafted the arbitration provision, as well as various publications disseminated to Kaiser members. In those materials, Kaiser represented that an arbitration in its program would reach a hearing within several months' time, and that its members would find the arbitration process to be a fair approach to protecting their rights.
In his May 31, 1991, demand letter, Rand requested that Kaiser's counsel contact him at the earliest convenience "so we may choose arbitrators." He [15 Cal.4th 964] repeated that request on June 14, 1991. On June 21, Kaiser's outside counsel, Willis F. McComas, indicated that Kaiser would provide the identity of its arbitrator only after receiving the Engallas' designation. Rand objected to this staggered disclosure as not authorized by the arbitration agreement. Having heard nothing from McComas by July 8, Rand went ahead and designated Attorney Peter Molligan as the Engallas' arbitrator, again repeating his request that Kaiser do likewise "so that the two arbitrators can immediately commence efforts to identify and appoint the neutral arbitrator." It was not until July 17, 47 days after service of the claim, that McComas designated Kaiser's party arbitrator, Attorney Michael Ney. McComas admitted that he had not calendered any of the deadlines for designation of the arbitrators, claiming "[t]here is no rule that requires that."
According to the Service Agreement, a neutral arbitrator is to be chosen by the two party arbitrators within thirty days of their selection, and the hearing is to be held "within a reasonable time thereafter." Thus, pursuant to [15 Cal.4th 965] the time frame mandated by Kaiser, the neutral arbitrator must be selected within 60 days after initial service of the claim. There is no dispute that timely appointment of a neutral arbitrator is critical to the progress of the case, inter alia, because the Code of Civil Procedure provides a right to discovery only "[a]fter the appointment of the arbitrator or arbitrators." (§ 1283.05, subd. (a).) In fact, in this case, McComas asserted that discovery could not commence until the neutral arbitrator was selected, because the neutral arbitrator would have to approve any discovery. Similarly, a hearing date cannot be set until the neutral arbitrator is appointed. (§ 1282.2, subd. (a).) In this case, McComas refused to discuss disclosure of expert witnesses until the hearing date was set. In short, the timely appointment of a neutral arbitrator is the linchpin of all progress in a Kaiser arbitration. Without a neutral arbitrator in place, and absent a stipulation, nothing can be accomplished.
In the initial claim of May 31, 1991, Rand requested the immediate commencement of the process for selection of arbitrators. During the next few months, Rand wrote more than a dozen letters to the arbitrators and McComas asking that the selections be made. Only two weeks after serving his demand letter, Rand stated that he intended "to encourage both designated arbitrators to identify the third arbitrator at the earliest possible date." On July 8, Rand suggested an agreement on the date for designation of experts, preferably in August, "and that we anticipate having the arbitration soon thereafter." On July 18, Rand again wrote to McComas on the subject of scheduling the arbitration hearing, noting that he would be prepared to proceed by early September. On July 23, Rand wrote to both party arbitrators and McComas, again stressing the terminal condition of the plaintiff, his desire to hold the arbitration hearing in early September, and the urgent need to select the third, neutral arbitrator. Rand again wrote to the two party arbitrators on August 9, and again urged them to "select the third arbitrator as soon as possible." The Engallas' designated arbitrator, Peter Molligan, also attempted to push the defense into motion. On August 12, after trying at least three times to get Ney on the phone, Molligan finally wrote Ney about selecting the neutral arbitrator in order to "get this case moving." A few days [15 Cal.4th 966] later, having still heard nothing, Rand tried again, saying: "Time is of the absolute essence and I again ask that you use all possible means to quickly select the third arbitrator. I am becoming increasingly concerned about the delays and am beginning to wonder whether the arbitration proceedings are suitable for this case."
After almost two more weeks, McComas wrote again on October 7, this time claiming that "[t]o this date, neither you nor your clients have agreed to [15 Cal.4th 967] the appointment of a neutral arbitrator" because "[y]ou apparently agreed to Judge Cooney with an unrealistic condition." fn. 5 Rand responded on October 16, stating, "I am incredulous that you are still asking that we agree to the appointment of the neutral arbitrator. We have repeatedly informed you that we will agree to your suggestion of Judge Cooney. Why do you continue to insist that we have not agreed? My only reservation was and still is a question concerning availability." On October 18, Rand again wrote that he was "still waiting to hear from you concerning the final retention of Judge Cooney. I had promised him that he would be hearing from you when I advised him that we had agreed to his appointment."
Statistically, delays occur in 99 percent of all Kaiser medical malpractice arbitrations. An independent statistical analysis of Kaiser-provided data of arbitration between 1984 and 1986 reveals that in only 1 percent of all Kaiser cases is a neutral arbitrator appointed within the 60-day period provided by the arbitration provision. Only 3 percent of cases see a neutral arbitrator appointed within 180 days. On average, it has taken 674 days for the appointment of a neutral arbitrator. For claimants whose cases were resolved by settlement or after a hearing, the time required to appoint a neutral arbitrator consumed more than half the total time for resolution. Furthermore, because the arbitration provision of the Service Agreement does not clearly establish a time frame for a hearing (it must be within a "reasonable time" after appointment of the neutral arbitrator), and because Kaiser claims it has no obligation to participate in a hearing until it deems itself ready, there tend to be significant additional delays after appointment of the neutral arbitrator. Thus, on average, it takes 863 days-almost 21/2 years-to reach a hearing in a Kaiser arbitration. The depositions of Scott [15 Cal.4th 968] Fleming and Arthur Bernstein, both of whom formerly served as Kaiser's in-house counsel, revealed that Kaiser had long been aware that widespread delays were commonplace in Kaiser arbitrations. G. Deposition Scheduling During the Aborted Arbitration Proceedings.
Rand's efforts to schedule depositions of the involved doctors and nurses continued to founder. He initially requested dates for the depositions of the treating physicians on June 26, and did so again on July 8. In his June 26 request, and in each subsequent request, Rand offered to schedule the depositions at times-even after hours or on weekends-that would be convenient for Kaiser. He finally set them by notice of July 18. On July 24, McComas's secretary called Rand to request that they be taken off calendar. Rand responded that he would cooperate, but only if alternative dates could be established. No alternative dates were ever proposed by Kaiser, and the witnesses did not attend their scheduled depositions. McComas failed to [15 Cal.4th 969] respond to three subsequent requests for depositions, which were made on September 5, 18, and 25. On September 24, McComas simply promised that his secretary would call to give dates for the health care providers. That did not occur until October 2, when McComas's secretary offered November 21 and 22 for the depositions of the doctors. This was the first time Kaiser had offered to produce the involved physicians, and the dates were still almost a month after Engalla's death. Although Rand ultimately convinced McComas to provide earlier dates for some (but not all) of the involved health care providers, the depositions were not taken because Engalla died before they could be completed.
Immediately upon learning of Engalla's death on October 23, Rand notified McComas of that fact and asked him to stipulate that Kaiser would not capitalize on the delays that had plagued the arbitration. Specifically, Rand explained that under the case of Atkins v. Strayhorn (1990) 223 Cal.App.3d 1380 [273 Cal.Rptr. 231], the limitation of $250,000 on noneconomic damages under Civil Code section 3333.2 for a medical malpractice suit is applied separately to the claims of a patient and his spouse who simultaneously claims loss of consortium. Because Mrs. Engalla had made such a claim, Atkins authorized a total claim for noneconomic damages of $500,000. However, upon the passing of Engalla, the case of Yates v. Pollock (1987) 194 Cal.App.3d 195 [239 Cal.Rptr. 383], required merger of the widow's loss of consortium claim into an indivisible claim for wrongful death, which warrants only a single general damage claim limited to $250,000. Rand's request for a stipulation to override the effect of Yates was refused. At that point, Rand notified McComas that the Engallas refused to continue with the arbitration.
On February 21, 1992, the Engallas filed their complaint in Alameda Superior Court. They alleged, in addition to the underlying malpractice claim, fraud as a defense to enforcement of the arbitration provision of the Service Agreement (hereafter arbitration agreement) and as the basis of an affirmative claim for damages, as well as various other claims related to the [15 Cal.4th 970] breach of the arbitration agreement. On March 20, Kaiser removed the case to the United States District Court for the Northern District of California, claiming that the action and all issues presented were subject to the rule of federal preemption contained in the Employee Retirement Income Security Act of 1974 (29 U.S.C. §§ 1132, 1144). About the same time, Kaiser proposed to continue the arbitration process. The Engallas declined the offer and, instead, filed a motion to remand. On June 19, the federal court granted the Engallas' motion in its entirety and remanded the matter back to state court.
After a hearing the trial court issued its order denying Kaiser's petition after making specific findings of fact on the issue of fraud both "in the inducement" and "in the application" of the arbitration agreement. The court further found that the arbitration agreement, as applied, was overbroad, unconscionable and a violation of public policy, inasmuch as Kaiser was arguing that the agreement could not be avoided on grounds of fraudulent inducement. The court further found that equitable considerations peculiar to this case required the invalidation of the arbitration provision. [15 Cal.4th 971]
Before proceeding to the merits, we must address certain procedural and threshold matters. As both parties concede, California law is expressly incorporated into the arbitration agreement in question, and governs the adjudication of any disputes arising from that agreement. (Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 476 [109 S.Ct. 1248, 1254, 103 L.Ed.2d 488].) [1] California law incorporates many of the basic policy objectives contained in the Federal Arbitration Act, including a presumption in favor of arbitrability (Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323 [197 [15 Cal.4th 972] Cal.Rptr. 581, 673 P.2d 251]) and a requirement that an arbitration agreement must be enforced on the basis of state law standards that apply to contracts in general (Madden v. Kaiser Foundation Hospitals (1976) 17 Cal.3d 699, 709, fn. 11 [131 Cal.Rptr. 882, 552 P.2d 1178] (Madden)). These policies guide our determination of the present matter.
The nature of the proceeding to resolve a petition to compel arbitration under California law was recently explained by this court in Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394 [58 Cal.Rptr.2d 875, 926 P.2d 1061] (Rosenthal). [2] As we explain in that case, sections 1281.2 and 1290.2 create a summary proceeding for resolving these petitions. (14 Cal.4th at p. 413.) The petitioner bears the burden of proving the existence of a valid arbitration agreement by the preponderance of the evidence, and a party opposing the petition bears the burden of proving by a preponderance of the evidence any fact necessary to its defense. (Ibid.) In these summary proceedings, the trial court sits as a trier of fact, weighing all the affidavits, declarations, and other documentary evidence, as well as oral testimony received at the court's discretion, to reach a final determination. (Id. at pp. 413-414.) No jury trial is available for a petition to compel arbitration. (Id. at p. 413.)
[3] Although the record is not entirely clear on this point, it appears that the trial court in this case, as in Rosenthal (see Rosenthal, supra, 14 Cal.4th at p. 414), incorrectly treated Kaiser's petition to compel arbitration as a type of summary judgment motion, in which it was obliged to determine only that there was a legitimate factual dispute among the parties and not to resolve that dispute. The court stated at the conclusion of its ruling on the petition to compel: "In summary, the Plaintiffs have made a substantive challenge to the arbitration clause and have presented facts tending to show that they were victims of fraud in the inducement and application of the arbitration clause. How a trier of fact will ultimately decide the issues is not for this court to decide. However, given the seriousness of the allegations, the showing of a factual basis for those claims, and the finality of arbitration even in the face of apparent legal error [citation], the strong policy favoring arbitration is outweighed by the law and facts in support of Plaintiffs' position." (Italics added.) To judge from remarks made by the trial court during the hearing on the petition to compel, the court appears to have followed the reasoning of Rowland v. Paine Webber Inc. (1992) 4 Cal.App.4th 279, 285-286 [6 Cal.Rptr.2d 20], that a court must only determine whether "there are any facts supporting the allegations of fraudulent inducement." Toward the end of the hearing on the petition to compel, the trial court again alluded to cases "that have ... talked in terms of the burden being akin to a burden on a summary judgment motion." Moreover, [15 Cal.4th 973] both counsel for the Engallas and for Kaiser appear to have conceived their burden as one similar to summary judgment. The trial court was apparently of the view that it did not have to definitively decide the fraud issue in order to dispose of the petition, because that issue would be ultimately decided by a jury in the context of the Engallas' damages action. Because the trial court, understandably confused by case law (see Rosenthal, supra, 14 Cal.4th at p. 407 and cases cited therein), apparently abdicated its role as trier of fact in deciding the petition to compel arbitration, the case must be remanded to that court to resolve any factually disputed issues, unless there is no evidentiary support for the Engallas' claims. (See id. at p. 414.) We turn then to the question whether there was such support. fn. 7
The Engallas claim fn. 8 that Engalla was fraudulently induced to enter the arbitration agreement-in essence a claim of promissory fraud. [7] " 'Prom- issory fraud' is a subspecies of fraud and deceit. A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud. [Citations.] [¶] An action for promissory fraud may lie [15 Cal.4th 974] where a defendant fraudulently induces the plaintiff to enter into a contract." (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 [49 Cal.Rptr.2d 377, 909 P.2d 981].) [8] The elements of fraud that will give rise to a tort action for deceit are: " '(a) misrepresentation (false representation, concealment, or nondisclosure); (b) knowledge of falsity (or "scienter"); (c) intent to defraud, i.e., to induce reliance; (d) justifiable reliance; and (e) resulting damage.' " (Ibid.) As explained below, there is no requirement to show pecuniary damages when fraud is the basis for a defense to a petition to compel arbitration, rather than a suit for damages.
First, evidence of misrepresentation is plain. "[F]alse representations made recklessly and without regard for their truth in order to induce action by another are the equivalent of misrepresentations knowingly and intentionally uttered." (Yellow Creek Logging Corp. v. Dare (1963) 216 Cal.App.2d 50, 55 [30 Cal.Rptr. 629].) As recounted above, section 8.B. of the arbitration agreement provides that party arbitrators "shall" be chosen within 30 days and neutral arbitrators within 60 days, and that the arbitration hearing "shall" be held "within a reasonable time thereafter." Although Kaiser correctly argues that these contractual representations did not bind it to appoint a neutral arbitrator within 60 days, since the appointment of that arbitrator is a bilateral decision that depends on agreements of the parties, Kaiser's contractual representations were at the very least commitments to exercise good faith and reasonable diligence to have the arbitrators appointed within the specified time. This good faith duty is underscored by Kaiser's contractual assumption of the duty to administer the health service plan as a fiduciary.
Here there are facts to support the Engallas' allegation that Kaiser entered into the arbitration agreement with knowledge that it would not comply with its own contractual timelines, or with at least a reckless indifference as to whether its agents would use reasonable diligence and good faith to comply with them. As discussed, a survey of Kaiser arbitrations between 1984 and [15 Cal.4th 975] 1986 submitted into evidence showed that a neutral arbitrator was appointed within 60 days in only 1 percent of the cases, with only 3 percent appointed within 180 days, and that on average the neutral arbitrator was appointed 674 days-almost 2 years-after the demand for arbitration. Regardless of when Kaiser became aware of these precise statistics, which were part of a 1989 study, the depositions of two of Kaiser's in-house attorneys demonstrate that Kaiser was aware soon after it began its arbitration program that its contractual deadlines were not being met, and that severe delay was endemic to the program. Kaiser nonetheless persisted in its contractual promises of expeditiousness.
The systemwide nature of Kaiser's delay comes into clearer focus when it is contrasted with other arbitration systems. As the Engallas point out, many large institutional users of arbitration, including most health maintenance organizations (HMO's), avoid the potential problems of delay in the selection of arbitrators by contracting with neutral third party organizations, such as the American Arbitration Association (AAA). These organizations will then assume responsibility for administering the claim from the time the arbitration demand is filed, and will ensure the arbitrator or arbitrators are [15 Cal.4th 976] chosen in a timely manner. fn. 9 Though Kaiser is not obliged by law to adopt any particular form of arbitration, the record shows that it did not attempt to create within its own organization any office that would neutrally administer the arbitration program, but instead entrusted such administration to outside counsel retained to act as advocates on its behalf. In other words, there is evidence that Kaiser established a self-administered arbitration system in which delay for its own benefit and convenience was an inherent part, despite express and implied contractual representations to the contrary. fn. 10
[10a] Kaiser also claims that the Engallas failed to demonstrate actual reliance on its misrepresentations. [11] Actual reliance occurs when a misrepresentation is " 'an immediate cause of [a plaintiff's] conduct, which alters his legal relations,' " and when, absent such representation, " 'he would not, in all reasonable probability, have entered into the contract or other transaction.' " (Spinks v. Clark (1905) 147 Cal. 439, 444 [82 P. 45]; see also 5 Witkin, Summary of Cal. Law (9th ed. 1988) Torts, § 711 at p. 810.) "It is not ... necessary that [a plaintiff's] reliance upon the truth of the [15 Cal.4th 977] fraudulent misrepresentation be the sole or even the predominant or decisive factor in influencing his conduct.... It is enough that the representation has played a substantial part, and so has been a substantial factor, in influencing his decision." (Rest.2d Torts, § 546, com. b, p. 103.)
Moreover, a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material. (Vasquez v. Superior Court (1971) 4 Cal.3d 800, 814 [94 Cal.Rptr. 796, 484 P.2d 964, 53 A.L.R.3d 513]; see also 12 Williston on Contracts (3d ed. 1970) § 1515, p. 480; Rest.2d, Contracts, § 167.) A misrepresentation is judged to be "material" if "a reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question" (Rest.2d Torts, § 538, subd. (2)(a); see also Barnhouse v. City of Pinole (1982) 133 Cal.App.3d 171, 188, fn. 5 [183 Cal.Rptr. 881]), and as such materiality is generally a question of fact unless the "fact misrepresented is so obviously unimportant that the jury could not reasonably find that a reasonable man would have been influenced by it." (Rest.2d Torts, § 538, com. e, p. 82.) Thus, the Engallas need only make a showing that the misrepresentations were material, and that therefore a reasonable trier of fact could infer reliance from such misrepresentations, in order to survive this summary-judgment-like proceeding, absent evidence conclusively rebutting reliance. (Cf. Security Pac. Nat. Bank v. Associated Motor Sales (1980) 106 Cal.App.3d 171, 179-180 [165 Cal.Rptr. 38] [presumption which shifts the burden of proving evidence entitles plaintiff to summary judgment if defendant fails to produce evidence to rebut the presumption].)
[12] In the present case, our assessment of the materiality of representations is somewhat complicated by the fact that the primary decision maker responsible for selecting the Kaiser health plan was not Engalla himself but his employer, Oliver Tire. The evidence shows that Engalla had little if any cognizance of the arbitration agreement, and that the form he signed to enroll in Kaiser merely stated that members' claims must be submitted to arbitration "[i]f the [health services plan] agreement so provides." On the other hand, Oliver Tire and its personnel employees were obviously aware of the arbitration provision and were responsible for scrutinizing the details of the health services plan before offering it to the company's employees. But this complication does not alter fundamentally our analysis of materiality. As we have recognized, an employer that negotiates group medical benefits for its employees acts as an agent for those employees during the period of negotiation. (Madden, supra, 17 Cal.3d at pp. 705-706 & fn. 5.) An agency relationship is a fiduciary one, obliging the agent to act in the interest of the principal. (See Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072 [58 Cal.Rptr.2d 213].) Accordingly, a material representation in this case is one [15 Cal.4th 978] that would have substantially influenced the health plan selection process of Oliver Tire, acting as an agent of its employees as a class. fn. 11
[10b] Applying these principles to the present case, we conclude that Kaiser's representations of expeditiousness in the arbitration agreement were not "so obviously unimportant" as to render them immaterial as a matter of law. We have recognized that expeditiousness is commonly regarded as one of the primary advantages of arbitration. " '[T]he parties to an arbitral agreement knowingly take the risks of error of fact or law committed by the arbitrators ... in order to obtain speedy decisions by experts in the field whose practical experience and worldly reasoning will be accepted as correct by other experts.' " (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 12 [10 Cal.Rptr.2d 183, 832 P.2d 899], italics added.) We have accordingly rejected, as a general proposition, the claim that arbitration agreements between an HMO and its participants are inherently one-sided in favor of the former. "The speed and economy of arbitration, in contrast to the expense and delay of a jury trial, could prove helpful to all parties ...." (Madden, supra, 17 Cal.3d at p. 711.) The explicit and implicit representations contained in Kaiser's arbitration agreement serve to confirm to the reasonable potential subscriber that Kaiser has an efficient system of arbitration, in which what is lost in terms of jury trial rights would be gained in part by a swifter resolution of the dispute. If it is indeed the case that these representations were false, and concealed an arbitration process in which substantial delay was the rule and timeliness the rare exception, then we cannot say these misrepresentations were so trivial that they would not have influenced a reasonable employer's decision as to which among the many competing employee health plans it would choose for its employees.
Kaiser argues to the contrary that the existence of section 1281.6 negates any possible materiality that its misrepresentation of expeditiousness may have had. That section states in pertinent part that in the absence of an agreed method of appointing an arbitrator, "or if the agreed method fails or for any reason cannot be followed ... the court, on petition of a party to the arbitration agreement, shall appoint the arbitrator." (Ibid.) But the mere fact [15 Cal.4th 979] that there is a statutory remedy to expedite the arbitrator selection process does not necessarily render the reality of Kaiser's systematic delay irrelevant to the selection of a health plan. A party's success in having a section 1281.6 petition granted is not necessarily assured, nor is it costless, nor is it in accord with normal expectations of arbitration participants, who view arbitration as an alternative to the courts. " 'Typically, those who enter into arbitration agreements expect that their dispute will be resolved without necessity for any contact with the courts.' " (Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9.) Given the reality that there exists a considerable number of roughly comparable group health plans (see How Good Is Your Health Plan? (Aug. 1996) Consumer Reports, at pp. 28, 40-41), a reasonable employer choosing a health plan for its employees may very well decline to select a plan with a dysfunctional arbitration system requiring court supervision.
[13a] We turn then to the question of injury. [14] A defrauded party has the right to rescind a contract, even without a showing of pecuniary damages, on establishing that fraudulent contractual promises inducing reliance have been breached. (See Earl v. Saks & Co. (1951) 36 Cal.2d 602, 611 [226 P.2d 340]; see also Calamari & Perillo, The Law of Contracts (3d ed. 1987) § 9.16, p. 360; Rest. 2d, Contracts, § 164, com. c, pp. 446-447.) The rule derives from the basic principle that a contracting party has a right to what it contracted for, and so has the right "to rescind where he obtain[ed] something substantially different from that which he [is] led to expect." (Earl v. Saks & Co., supra, 36 Cal.2d at p. 612.) It follows that a defrauded party does not have to show pecuniary damages in order to defeat a petition to compel arbitration. [13b] Of course, the Engallas cannot defeat a [15 Cal.4th 980] petition to compel arbitration on the mere showing that Kaiser has engaged generally in fraudulent misrepresentation about the speed of the arbitration process. Rather, they must show that in their particular case, there was substantial delay in the selection of arbitrators contrary to their reasonable, fraudulently induced, contractual expectations. Here, there is ample evidence to support the Engallas' contention that Kaiser breached its arbitration agreement by repeatedly delaying the timely appointment of an available party arbitrator and a neutral arbitrator.
To be sure, the mere fact that the selection of arbitrators extended beyond their 30and 60-day deadlines does not by itself establish that Kaiser breached its arbitration agreement. It is, after all, the malpractice claimant in arbitration, like the plaintiff in litigation, who bears the primary responsibility of exercising diligence in order to advance progress towards the resolution of its claim (see Burgess v. Kaiser Foundation Hospitals (1993) 16 Cal.App.4th 1077, 1081-1082 [20 Cal.Rptr.2d 488]), and Kaiser is under no obligation to press for appointment of arbitrators when a claimant is himself dilatory. Nor is the contract breached when delay in the selection of arbitrators is the result of reasonable disagreements over arbitrator selection. Nonetheless, as explained above, Kaiser, by agreeing to 30and 60-day periods for the appointment of arbitrators, committed itself to cooperate with reasonable diligence and good faith in the process of appointing the arbitrators within the specified times. (See Frey & Horgan Corp. v. Superior Court (1936) 5 Cal.2d 401, 404 [55 P.2d 203].) Here, there is strong evidence that, despite a high degree of diligence on the part of Engalla's counsel in attempting to obtain the timely appointment of arbitrators, Kaiser lacked either reasonable diligence or good faith, or both, in cooperating on these timely appointments. Instead, the evidence shows that it engaged in a course of nonresponse and delay and added extracontractual conditions to the arbitration selection process, such as the requirement that the claimant name a party arbitrator first. Thus, strong evidence supports the conclusion that Kaiser did not fulfill its contractual obligations in this case to appoint arbitrators in a timely manner.
Nor does the presence of section 1281.6 excuse Kaiser's alleged misfeasance, as Kaiser contends. That section, as explained above, provides a statutory method for resolving breakdowns in the arbitrator selection process, and states in pertinent part that in the absence of an agreed method of appointing an arbitrator, "or if the agreed method fails or for any reason cannot be followed ... the court, on petition of a party to the arbitration agreement, shall appoint the arbitrator." Kaiser contends that section 1281.6 is implicitly incorporated into the contract, which specifies that California law be followed. Yet the availability of section 1281.6 does not absolve [15 Cal.4th 981] Kaiser of its explicit and implicit contractual duties to timely select a neutral arbitrator and to not obstruct progress towards arbitration. All section 1281.6 provides is a remedy for the breach of those duties of which parties may avail themselves. As noted, this remedy compels claimants to go into superior court and seek specific performance of the arbitration agreement, forcing them to engage in at least some litigation in order to vindicate their rights and thereby violating the usual expectations of an arbitration agreement. (See Moncharsh v. Heily & Blase, supra, 3 Cal.4th at p. 9.) Nothing in the language of section 1281.6 compels a party to seek this remedy, nor does this language suggest that resort to section 1281.6 is a precondition to opposing successfully a petition to compel arbitration when the petitioning party has engaged in fraud. Rather, section 1281.6 appears to be simply a legislative means of implementing this state's policy in favor of arbitration by permitting parties to an arbitration contract to expedite the arbitrator selection process.
In sum, we conclude there is evidence to support the Engallas' claims that Kaiser fraudulently induced Engalla to enter the arbitration agreement in that it misrepresented the speed of its arbitration program, a misrepresentation on which Engalla's employer relied by selecting Kaiser's health plan for its employees, and that the Engallas suffered delay in the resolution of its malpractice dispute as a result of that reliance, despite Engalla's own reasonable diligence. The trial court, on remand, must resolve conflicting factual evidence fn. 12 in order to properly adjudicate Kaiser's petition to compel arbitration. fn. 13 [15 Cal.4th 982]
As a threshold matter, Kaiser argues that this waiver claim should be resolved by an arbitrator rather than by the court. Kaiser asserts that "arbitrators have exclusive jurisdiction to decide not only the substantive merits of a controversy but also any procedural disputes that precede the arbitration hearing," and that the Engallas' waiver claim is such a "procedural" dispute. In support of this assertion, it cites John Wiley & Sons v. Livingston (1964) 376 U.S. 543, 556-558 [84 S.Ct. 909, 917-919, 11 L.Ed.2d 898]. That case is inapposite. There the court considered an arbitration agreement that was part of the grievance machinery established by a labor management contract. There was no question that the parties had a valid and enforceable arbitration agreement, and no claim that the agreement had been waived. The court held rather that the question whether the parties had properly exhausted their remedies in the preliminary stages of the grievance process prior to invoking their right to arbitration-that is, whether a party's arbitration rights were invoked prematurely-was for the arbitrator to decide. (Id. at pp. 557-558 [84 S.Ct. at pp. 918-919].) "Once it is determined, ... that the parties are obligated to submit the subject matter of a dispute to arbitration, 'procedural' questions which grow out of the dispute and bear on its final disposition should be left to the arbitrator." (Id. at p. 557 [84 S.Ct. at p. 918].) Here, the question is different and more fundamental-whether Kaiser, by its delay or by other acts or omissions, has in fact waived its right to compel arbitration. Section 1281.2, subdivision (a), gives the trial court jurisdiction to decide this question when petitioned to compel arbitration. fn. 14
[16a] Turning to the substance of the waiver claim, we have explained that the term "waiver" has a number of meanings in statute and case law. [15 Cal.4th 983] (Platt Pacific, Inc. v. Andelson (1993) 6 Cal.4th 307, 315 [24 Cal.Rptr.2d 597, 862 P.2d 158].) "Generally, 'waiver' denotes the voluntary relinquishment of a known right. But it can also mean the loss of an opportunity or 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." (Ibid.) The varied meanings of the term "waiver" are reflected in the case law on the enforcement of arbitration agreements. "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. [Citation.] [¶] Although a number of authorities properly caution that a waiver of arbitration is not to be lightly inferred [citation], our cases establish that no single test delineates the nature of the conduct of a party that will constitute such a waiver. As our court stated in Sawday v. Vista Irrigation Dist. [(1966)] 64 Cal.2d 833, 836 [52 Cal.Rptr. 1, 415 P.2d 816]; 'Whether there has been a waiver of a right to arbitrate is ordinarily a question of fact, and a finding of waiver, if supported by sufficient evidence, is binding on an appellate court. [Citations.]' " (Davis v. Blue Cross of Northern California (1979) 25 Cal.3d 418, 425-426 [158 Cal.Rptr. 828, 600 P.2d 1060] (Davis); see also Platt Pacific, Inc. v. Andelson, supra, 6 Cal.4th at pp. 315-316.) [15b] The Engallas claim that unreasonable delay and bad faith found in Kaiser's dilatory conduct in choosing arbitrators constituted a form of waiver, and that Kaiser's petition to compel arbitration accordingly should be denied.
[16b] As we explained in Davis, the question of waiver is one of fact, and an appellate court's function is to review a trial court's findings regarding waiver to determine whether these are supported by substantial evidence. [15c] The trial court in this case made no findings regarding the Engallas' waiver claim, focusing instead on their fraud claim, which has therefore been our primary focus as well. Given the summary-judgment-like posture [15 Cal.4th 984] of the present case, our sole task is to review the record to determine whether there are facts to support the Engallas' waiver claim. We conclude that the evidence of Kaiser's course of delay, reviewed extensively above, which was arguably unreasonable or undertaken in bad faith, may provide sufficient grounds for a trier of fact to conclude that Kaiser has in fact waived its arbitration agreement.
[17] We turn then to the Engallas' unconscionability argument. We have required that "contractual arrangement[s] for the nonjudicial resolution of disputes" must possess " 'minimum levels of integrity.' " (Graham v. Scissor-Tail, Inc. (1981) 28 Cal.3d 807, 827 [171 Cal.Rptr. 604, 623 P.2d 165].) Thus, in Graham v. Scissor-Tail, Inc., we held that an arbitration agreement that called for the selection of an arbitrator affiliated with one of the parties to the contract was unconscionable. (Ibid.) In addition to the general doctrine of unconscionability derived from contract law, HMO's such as Kaiser are regulated by the Knox-Keene Health Care Service Plan Act, which provides among other things that all contracts made in connection with a health service plan be "fair, reasonable, and consistent with the objectives" of that statute. (Health & Saf. Code, § 1367, subd. (h).) HMO's are therefore especially obligated not to impose contracts on their subscribers that are one-sided and lacking in fundamental fairness.
In determining whether a contract term is unconscionable, we first consider whether the contract between Kaiser and Engalla was one of adhesion. (See Graham v. Scissor-Tail, Inc., supra, 28 Cal.3d at p. 817.) In Madden, [15 Cal.4th 985] supra, 17 Cal.3d 699, we held that an agreement between Kaiser and a state employee was not a true contract of adhesion, although Kaiser's health plan was offered to state employees "on a 'take it or leave it' basis without opportunity for individual bargaining." (Id. at p. 710.) We reasoned that the Kaiser contract was not adhesive because (1) it "represents the product of negotiation between two parties, Kaiser and the [State Employees Retirement System], possessing parity of bargaining strength" and (2) the state employee could choose from among a number of different health plans, and thus was not confronted with the choice typical of a contract of adhesion of "either adher[ing] to the standardized agreement or forego[ing] the needed service." (Id. at p. 711.) We also found that the arbitration clause in question was not, unlike the unconscionable clauses in adhesion contracts, a term that limits the liability or obligations of a stronger party, but rather "could prove helpful to all parties." (Ibid.)
Yet none of these features of Kaiser's arbitration program renders the arbitration agreement per se unconscionable. As noted above, section 1281.6 [15 Cal.4th 986] specifically contemplates a system whereby neutral arbitrators will be chosen directly by the parties. The alleged problem with Kaiser's arbitration in this case was not any defect or one-sidedness in its contractual provisions, but rather in the gap between its contractual representations and the actual workings of its arbitration program. It is the doctrines of fraud and waiver, rather than of unconscionability, that most appropriately address this discrepancy between the contractual representation and the reality. Thus, viewing the arbitration agreement on its face, we cannot say it is unconscionable. fn. 16
Unfairness in arbitration sufficiently extreme to justify court intervention can take many forms. As I have previously stated, in my view courts have the power to overturn an arbitrator's decision if it contains manifest error that causes substantial injustice. (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 36-40 [10 Cal.Rptr.2d 183, 832 P.2d 899] (dis. opn. of Kennard, J.).) It is also my view that arbitrators are limited to the same remedies that a court could award under the circumstances of the case, and that a court may overturn an arbitrator's award of relief that exceeds that limit. (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 394-395, 400-401 [36 Cal.Rptr.2d 581, 885 P.2d 994] (dis. opn. of Kennard, J.).) [15 Cal.4th 987]
Finally, it is worth noting that new possibilities for unfairness arise as arbitration ventures beyond the world of merchant-to-merchant disputes in which it was conceived into the world of consumer transactions (like the [15 Cal.4th 988] health care agreement in this case) and nonunion employment relationships. fn. 1 In such cases, the assumption that the parties have freely chosen arbitration as a dispute resolution mechanism in a process of arm's-length negotiation may be little more than an illusion. Unlike the traditional model of arbitration agreements negotiated between large commercial firms with equal bargaining power, consumer and employment arbitration agreements are typically "take it or leave it" propositions, contracts of adhesion in which the only choice for the consumer or the employee is to accept arbitration or forego the transaction. And the fact that the business organization imposing the arbitration clause is a repeat player in the arbitration system, while the consumer or employee is not, raises the potential that arbitrators will consciously or unconsciously bias their decisions in favor of an organization or industry that hires them regularly as an arbitrator.
Here, neither plaintiffs' decedent nor his employer was afforded an opportunity to accept or reject arbitration as the means of resolving disputes. Rather, Kaiser's standard health care agreement, which included the arbitration requirement, was presented on a "take it or leave it" basis. (See maj. opn., ante, at p. 985.) There was no true bargaining involved here. Moreover, although Kaiser appears to have led its members to believe that Kaiser administered its arbitration system fairly and as a "fiduciary" (id. at p. 962), in reality the opposite may have been true. Kaiser "administered" its arbitration system through its defense attorneys, who appear to have manipulated the process to Kaiser's advantage. (Id. at pp. 975-976.) [15 Cal.4th 989]
As this court recently explained, "Title 9 of the Code of Civil Procedure, fn. 1 as enacted and periodically amended by the Legislature, represents a comprehensive statutory scheme regulating private arbitration in this state. (§ 1280 et seq.) Through this detailed statutory scheme, the Legislature has expressed a 'strong public policy in favor of arbitration as a speedy and relatively inexpensive means of dispute resolution.' [Citations.] Consequently, courts will ' "indulge every intendment to give effect to such proceedings." ' [Citations.] Indeed, more than 70 years ago this court explained: 'The policy of the law in recognizing arbitration agreements and in providing by statute for their enforcement is 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.' [Citation.] 'Typically, those who enter into arbitration agreements expect that their dispute will be resolved without necessity for any contact with the courts.' " (Moncharsh v. Heily & Blase (1992) 3 Cal.4th 1, 9 [10 Cal.Rptr.2d 183, 832 P.2d 899].)
Although the majority purports to "affirm the basic policy in favor of enforcement of arbitration agreements" (maj. opn., ante, at p. 960), it nonetheless concludes that "the governing statutes place limits on the extent to which a party that has committed misfeasance in the performance of such an agreement may compel its enforcement." (Ibid., italics added.) I cannot [15 Cal.4th 990] agree with the majority's interpretation of the governing statutory framework. In my view, except for seeking statutorily prescribed court assistance in the arbitrator selection process (see post, at pp. 992-994), once a private arbitration is pending, a party must seek relief for its adversary's "misfeasance in the performance" in the arbitral forum, not in the courts. Make no mistake about it. The majority's decision to validate a party's unilateral withdrawal from a pending arbitration based on the conduct of its arbitration adversary will wreak havoc on arbitrations throughout the state. Therefore, I respectfully dissent.
Thereafter, on October 28, the Engallas refused to continue with the pending arbitration. fn. 3 The reason the Engallas withdrew from the arbitration was that Kaiser declined to stipulate that Mrs. Engalla's separate loss of consortium claim survived her husband's death. It is this unilateral withdrawal from a pending arbitration that the majority's decision validates. [15 Cal.4th 991]
To construe section 1281.2 in the sweeping fashion advanced by the majority will seriously compromise the integrity of the arbitral process and will impose an unpredictable and unnecessary burden on our trial courts. It is well established that "contractual arbitration has a life of its own out side the judicial system." (Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790, 1805 [13 Cal.Rptr.2d 678]; see also Nanfito v. Superior Court (1991) 2 Cal.App.4th 315, 318 [2 Cal.Rptr.2d 876]; Byerly v. Sale (1988) 204 Cal.App.3d 1312, 1316 [251 Cal.Rptr. 749].) "It is the job of the arbitrator, not the court, to resolve all questions needed to determine the [15 Cal.4th 992] controversy. [Citations.] The arbitrator, and not the court, decides questions of procedure and discovery. [Citations.] It is also up to the arbitrator, and not the court, to grant relief for delay in bringing an arbitration to a resolution." (Titan/Value Equities Group, Inc. v. Superior Court (1994) 29 Cal.App.4th 482, 487-488 [35 Cal.Rptr.2d 4], fns. omitted.)
"This does not mean that a party to an arbitration proceeding has no remedy against dilatory tactics." (Brock v. Kaiser Foundation Hospitals, supra, 10 Cal.App.4th at p. 1808.) Rather, a party who has suffered as a result of such tactics may seek appropriate relief in the arbitral forum. (Ibid.; see also Titan/Value Equities Group, Inc. v. Superior Court, supra, 29 Cal.App.4th at p. 488; Nanfito v. Superior Court, supra, 2 Cal.App.4th at pp. 318-319; Byerly v. Sale, supra, 204 Cal.App.3d at p. 1316; Young v. Ross-Loos Medical Group, Inc. (1982) 135 Cal.App.3d 669, 673 [185 Cal.Rptr. 536].)
Nor does the fact that the arbitrator selection process in a given private arbitration has not yet been completed preclude a party from obtaining appropriate relief. To the contrary, section 1281.6 provides a mechanism by which a party can seek limited assistance from the trial court in obtaining the appointment of an arbitrator or arbitrators. fn. 4 (Burgess v. Kaiser Foundation Hospitals (1993) 16 Cal.App.4th 1077, 1079, 1081-1082 [20 Cal.Rptr.2d 488]; Brock v. Kaiser Foundation Hospitals, supra, 10 Cal.App.4th at pp. 1803-1804; American Home Assurance Co. v. Benowitz (1991) 234 Cal.App.3d 192, 198-202 [285 Cal.Rptr. 626]; Boutwell v. Kaiser Foundation Health Plan (1988) 206 Cal.App.3d 1371, 1374 [254 Cal.Rptr. 173]; Young v. Ross-Loos Medical Group, Inc., supra, 135 Cal.App.3d at pp. 674-675; Cook v. Superior Court (1966) 240 Cal.App.2d 880, 887 [50 Cal.Rptr. 81].) "[O]nce there is an arbitrator appointed pursuant to section 1281.6, the party seeking to expedite the arbitration proceedings can apply to the arbitrator for [appropriate relief]." (Brock v. Kaiser Foundation Hospitals, supra, 10 Cal.App.4th at p. 1804.) [15 Cal.4th 993]
The inclusiveness of the language of section 1281.6 belies the notion that it contains some sort of ill-defined exception for unreasonable or bad faith delay. (See maj. opn., ante, at pp. 980-981, 984.) By its own terms, the statute comes into play whenever "the agreed method [of appointing an arbitrator] fails or for any reason cannot be followed." (§ 1281.6, italics added.) If there were any doubt that the statutory remedy was intended to apply broadly, the Legislature has now put it to rest. Largely in response to this very case, the Legislature recently enacted Health and Safety Code section 1373.20, subdivision (a)(2), providing that for nonindependent arbitration systems such as Kaiser's "[i]n cases or disputes in which the parties have agreed to use a tripartite arbitration panel consisting of two party arbitrators and one neutral arbitrator, and the party arbitrators are unable to agree on the designation of a neutral arbitrator within 30 days after service of a written demand requesting the designation, it shall be conclusively presumed that the agreed method of selection has failed and the method [15 Cal.4th 994] provided in Section 1281.6 of the Code of Civil Procedure may be utilized." The new legislation also provides for attorney fees and costs against a party that "has engaged in dilatory conduct intended to cause delay in proceeding under the arbitration agreement." (Health & Saf. Code, § 1373.20, subd. (b).)
In this case, having previously submitted their dispute to private arbitration and having already completed the arbitrator selection process, the Engallas should have sought relief for Kaiser's dilatory conduct in the pending arbitration. For example, the Engallas could have presented their fraud and waiver claims directly to the arbitrators and requested that they not enforce the arbitration provision. (See ATSA of California, Inc. v. Continental Ins. Co. (9th Cir. 1983) 702 F.2d 172, 175 [waiver claim]; Local 81, Am. Fed. of Tech. Eng. v. Western Elec. Co., Inc. (7th Cir. 1974) 508 F.2d 106, 109 [same]; cf. Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 431-433 [58 Cal.Rptr.2d 875, 926 P.2d 1061] (conc. opn. of Kennard, J.) [fraudulent inducement claim as to the contract as a whole].) Likewise, the Engallas could have requested that the arbitrators sanction Kaiser's dilatory conduct by deeming Mrs. Engalla's separate loss of consortium claim to have survived her husband's death. (See Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362 [36 Cal.Rptr.2d 581, 885 P.2d 994] [describing broad remedial powers of arbitrators].) In fact, at oral argument, the Engallas' counsel conceded that this case could likely have remained in private arbitration if Mrs. Engalla's economic loss had been ameliorated.
In addition, as the Engallas' counsel acknowledged at oral argument, if this court validates the Engallas' unilateral withdrawal, other parties to pending arbitrations will doubtlessly engage in the same conduct. Counsel's answer to this dilemma was that this court should "trust the trial courts." The majority's answer is to "emphasize ... that the delay must be substantial, unreasonable, and in spite of the claimant's own reasonable diligence" and [15 Cal.4th 995] not "the result of reasonable and good faith disagreements between the parties." (Maj. opn., ante, at p. 984; see also id. at pp. 979-980.)
"Great cases like hard cases make bad law. For great cases are called great, not by reason of their real importance in shaping the law of the future, but because of some accident of immediate overwhelming interest which appeals to the feelings and distorts the judgment. These immediate interests exercise a kind of hydraulic pressure which makes what previously was clear seem doubtful, and before which even well settled principles of law will bend." (Northern Securities Co. v. United States (1904) 193 U.S. 197, 400-401 [24 S.Ct. 436, 468, 48 L.Ed. 679] (dis. opn. of Holmes, J.).) Although legislators, practitioners, and courts have all expressed concern that disparities in bargaining power may affect the procedural fairness of consumer arbitration agreements, this case amply demonstrates why any solutions should come from the Legislature, whose ability to craft precise exceptions is far superior to that of this court.
However well-intentioned the majority and however deserving its intended target, today's holding pokes a hole in the barrier separating private arbitrations and the courts. Unfortunately, like any such breach, this hole will eventually cause the dam to burst. Ironically, the tool the majority uses to puncture its hole is the observation that " ' "those who enter into arbitration agreements expect that their dispute will be resolved without necessity for any contact with the courts." ' [Citation.]" (Maj. opn., ante, at p. 979; see [15 Cal.4th 996] also id. at p. 981.) Because I suspect that parties to private arbitrations will be having quite a bit more contact with the courts than they ever bargained for, I dissent.
­FN 2. Part I of this opinion has been adapted from the Court of Appeal opinion, with some modifications.
­FN 3. The relevant portions of the Kaiser arbitration provision, found in section 8.B. of the Service Agreement, are as follows: "Within 30 days after initial service on a Respondent, Claimant and Respondent each shall designate an arbitrator and give written notice of such designation to the other, and Claimant shall forward $150, made payable to Kaiser Foundation Health Plan Arbitration Account, to Kaiser Foundation Health Plan.... This $150 will be deposited with Respondent's $150 in a special account maintained by Bank of America National Trust and Savings Association [and will] ... provide the initial funds to pay the fees of the neutral arbitrator and expenses of arbitration as approved by him or her .... Within 30 days after these notices have been given and payments made, the two arbitrators so selected shall select a neutral arbitrator and give notice of the selection to Claimant and all Respondents served, and the three arbitrators shall hold a hearing within a reasonable time thereafter ...."
­FN 4. Watrous was, however, planning a three-week European vacation during October, which would have made him unavailable for much of the time period in which the Engallas were seeking to complete the arbitration.
­FN 5. The Engallas claim that McComas dissembled on September 24 and October 7 when he expressed uncertainty about Judge Cooney's availability and the plaintiffs' agreement to appointment of the retired judge. They argue that, by that time, McComas had not even contacted Judge Cooney to determine his availability, and that, in fact, Judge Cooney was available during September and October to preside over the hearing. They conclude that, by initially feigning uncertainty about whether Engalla had agreed to Judge Cooney's appointment, McComas managed to delay the appointment for over six weeks.
­FN 6. Kaiser and its counsel also filed in the Court of Appeal separate writ petitions requesting reversal of the trial court's discovery order discussed above. The Court of Appeal granted that relief, concluding that such discovery issues should be addressed to the arbitrator. The petition for review did not request review of the Court of Appeal's decision in the writ petition, which was premised on its grant of Kaiser's petition to compel arbitration. Accordingly, we do not address the issues raised by the writ petitions in this opinion. On remand, the parties are free to make or renew any discovery request relevant to the resolution of the petition to compel arbitration.
­FN 7. In reviewing this quasi-summary-judgment motion we will "undertake[] an independent review of the evidence presented to the trial court to determine whether [any] triable issues of fact were presented." (Schrader v. Scott (1992) 8 Cal.App.4th 1679, 1683 [11 Cal.Rptr.2d 433].)
­FN 8. For the sake of convenience, the arguments of the various amici curiae for the parties will be attributed to the parties.
­FN 9. Under the AAA proceeding, for example, that organization submits simultaneously to each of the parties, shortly after the arbitration demand is filed, a list of names of possible arbitrators and their biographical information. Each party is then given 10 days to cross off the names to which it objects and to number the remaining names in order of preference. If a party does not respond within the 10-day period, all the arbitrators on the list are deemed to be acceptable to it. The AAA then selects the arbitrator or arbitrators from the list, who set a hearing date and supervise discovery. A similar procedure is employed for judicial arbitration. (See Cal. Rules of Court, rule 1605.)
­FN 10. There is also evidence that Kaiser disseminated information through its newsletters which was seen by responsible officials in Oliver Tire, the company in which Engalla was employed, that represented Kaiser's arbitration system as fast and efficient. These misrepresentations further support the Engallas' fraud claim.
­FN 11. We recognize, of course, that this inverse agency relationship between the employer and its employees is a narrow one, and does not preclude an employer from acting in its own interests to obtain cost savings for the enterprise as a whole when choosing a group health plan. But, within these constraints, an employer negotiating or selecting a group health plan on behalf of its employees is presumed to be acting in their interest. If that proves not to be the case, then an employee bound by an arbitration agreement of which he was scarcely aware could well raise a claim that such agreement was unconscionable. (See Madden, supra, 17 Cal.3d at p. 711.) In the present case, the deposition testimony of Oliver Tire personnel confirms that the company acted with its employees' interests in mind in selecting a group health plan.
­FN 12. On remand the trial court may, at its discretion, rely on the documentary evidence already presented, may request further documentary submissions, or may request oral testimony. (See Rosenthal, supra, 14 Cal.4th at p. 414.)
­FN 13. The Engallas also argue "constructive fraud" based on Kaiser's duty, as a fiduciary, to disclose the actual workings of its arbitration system, including systemwide delay. Constructive fraud consists of "any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or anyone claiming under him, by misleading another to his prejudice, or to the prejudice of anyone claiming under him." (Civ. Code, § 1573.) It is generally asserted against a fiduciary by one to whom a fiduciary duty is owed. (See, e.g., Estate of Gump (1991) 1 Cal.App.4th 582, 601 [2 Cal.Rptr.2d 269].) "Constructive fraud allows conduct insufficient to constitute actual fraud to be treated as such where the parties stand in a fiduciary relationship." (Ibid.) Because we conclude the Court of Appeal must be reversed on the Engallas' actual fraud theory, we need not and do not address the question of constructive fraud.
­FN 14. Kaiser also claims that support for its position that the waiver issue is for the arbitrator can be found in Brock v. Kaiser Foundation Hospitals (1992) 10 Cal.App.4th 1790 [13 Cal.Rptr.2d 678]. In that case, the plaintiff filed a medical malpractice claim against Kaiser, and the claim was stayed by the trial court pursuant to section 1281.4 after the parties stipulated to submit to contractual arbitration. After more than five years had elapsed, Kaiser filed a petition in the trial court for dismissal of the action on grounds of delay. The Court of Appeal held the trial court had no jurisdiction to dismiss the case, but that any such action must be taken by the arbitrator. (10 Cal.App.4th at p. 1808.) In the present case, unlike Brock, one of the parties to the arbitration claims the other party has waived its right to compel arbitration within the context of a petition to compel arbitration. Section 1281.2, subdivision (a), gives the court jurisdiction to decide such a waiver claim.
­FN 15. See footnote 9, ante, at page 976, for an explanation of AAA's procedures.
­FN 16. We note that after review was granted in this case, the Legislature enacted Senate Bill No. 1660 (1995-1996 Reg. Sess.) amending Health and Safety Code section 1373.19 and adding Health and Safety section 1373.20. Health and Safety Code section 1373.20 specifically addresses a situation in which a health care service plan does not use "a professional dispute resolution organization independent of the plan" to settle arbitration disputes. For such organizations, Health and Safety Code section 1373.20 provides a means of expediting the procedures set forth in Code of Civil Procedure section 1281.6, mandating the trial court to "conclusively presume[]" that the agreed method of selecting arbitrators has failed 30 days after one party has served a written demand to designate an arbitrator upon the other one. That section also provides for an award of the reasonable cost of a section 1281.6 petition when the court finds a party's conduct to be "dilatory." We express no opinion whether this new legislation would affect our analysis of cases such as the present.
­FN 1. Legislation is pending on both the state and federal levels to address some of the unique problems of arbitration agreements governing consumer and nonunion employment disputes. At the state level, legislation is currently pending that would make arbitrations conducted under standardized employment, health care, and consumer contracts reviewable for legal error that causes a miscarriage of justice; in addition, a party could require the arbitrator in such a case to give a written explanation of the basis for the award. (Sen. Bill No. 19 (1997-1998 Reg. Sess.), approved by Sen., May 8, 1997.)
­FN 1. Unless otherwise indicated, all further statutory references are to the Code of Civil Procedure.
­FN 2. Unless otherwise indicated, all further references to dates are to the year 1991.
­FN 3. In my view, the private arbitration commenced on June 17, the date Kaiser submitted to the Engallas' arbitration demand. Even if the arbitration could somehow be deemed to have commenced on a later date, it is beyond peradventure that the arbitration was pending as of October 28, the date of the Engallas' unilateral withdrawal. By this time, the parties had already designated both the party arbitrators and the neutral arbitrator. Thus, the majority properly characterizes the Engallas' actions on October 28 as the "[t]ermination of the [p]rior [a]rbitration." (Maj. opn., ante, at p. 969.) Similarly, in a declaration submitted to the trial court, the Engallas' counsel correctly references "the termination of the arbitration proceedings."
­FN 4. Section 1281.6 provides that "if the agreed method [of appointing an arbitrator] fails or for any reason cannot be followed, ... the court, on petition of a party to the arbitration agreement, shall appoint the arbitrator." The United States Arbitration Act affords a nearly identical remedy. (See 9 U.S.C. § 5.)
­FN 5. The majority's decision to validate the Engallas' waiver claim promises to be particularly pernicious because the success of such a claim does not depend on any up-front, precontractual misrepresentations but solely on a party's performance during the course of a pending arbitration.
Petition for review after the Court of Appeal reversed an order denying a petition to compel arbitration. and granted petitions for peremptory writ of mandate. This case presents issues concerning the enforceability of an arbitration provision in a group health plan medical and hospital service agreement.
Mon, 06/30/1997 15 Cal.4th 951 S048811 Review - Civil Appeal closed; remittitur issued
1 Engalla, Nida (Respondent)
Represented by David S. Rand
Steuart St. Tower, #1300
2 Permanente Medical Group, Inc. (Appellant)
Represented by Willis F. Mccomas
Archer, Mc Comas & Lageson
2033 N. Main St., #800
3 Permanente Medical Group, Inc. (Appellant)
Represented by Kennedy Park Richardson
4 Kaiser Foundation Hospitals, Inc. (Appellant)
5 Kaiser Foundation Hospitals, Inc. (Appellant)
6 Kaiser Foundation Health Plan, Inc. (Appellant)
7 Kaiser Foundation Health Plan, Inc. (Appellant)
8 Council Of University Of California Faculty Associations (Amicus curiae)
c/o David E. Feller
School of Law/Boalt Hall
9 National Employment Lawyers Association (Amicus curiae)
Represented by Cliff Palefsky
Mcguinn, Hillsman, & Palefsky
535 Pacific Ave.
10 Consumers Union (Amicus curiae)
Represented by Gail K. Hillebrand
11 Public Advocates, Inc. (Amicus curiae)
Represented by Stefan M. Rosenzweig
13 Proposition 103 Enforcement (Amicus curiae)
Represented by David Link
1750 Ocean Park Boulevard
14 Congress Of California Seniors (Amicus curiae)
Represented by James C. Sturdevant
15 California Medical Association (Amicus curiae)
Thelen,Marrin, Johnson & Bridges
16 Association For California Tort Reform (Amicus curiae)
2600 Tenth Street, Suite 511
233 "A" Street Suite 500
19 Cigna Healthcare Of California (Amicus curiae)
Represented by Kenneth R. Jr. Zuetel
Hammond Zuetel & Cahill
180 S. Lake Avenue
Sutie 540
Jun 30 1997 Opinion: Reversed
Sep 12 1995 Petition for review filed
By Counsel for Resps., Nida Engalla, Et Al., in San Francisco. Records requested Electronically.
Sep 15 1995 Received:
CA Record in ** A063427** one Brown Envelope CA Record in ** A063547 ** one Brown Envelope
Oct 2 1995 Answer to petition for review filed
Apps the Permanente Medical Group, Kaiser Founda- Tions Hospitals & Kaiser Foundation Health Plan Inc.
Oct 6 1995 Reply to answer to petition filed
By Counsel for Resps, Engalla, Et Al., in S.F.
Oct 13 1995 Filed letter from:
Aty Richardson - Apps' response to Depub Requests
Oct 18 1995 Received letter from:
Atty Richardson
Oct 20 1995 Received letter from:
Resps dated 10-18-95
Nov 2 1995 Petition for Review Granted
Resps' Petn.Gtd. Votes:all 7
Nov 3 1995 Application for Extension of Time filed
Resps' Opening brief/merits (asking to 1/2/96) [granted - Order in Prep]
Resps' Opening brief/merits to 1/2/96.
Nov 29 1995 Telephone conversation with:
Counsel Duplicate copies requested of Rehearing Petns & answers Thereto, filed 8/18/95 & 8/28/95 (2 Sets Each) [Duplicate Originals for Record]
Dec 18 1995 Note:
Additional Record requested from Ca/1 file Clerks [Confidential Appendixes in Lieu of Clerk's Trx, Rptr Trx, Etc. - See Ca/1 Docket sheet.]
Dec 21 1995 Application to appear as counsel pro hac vice (granted case)
Request to appear as counsel pro hac vice for AC Council of University of California Faculty Associations, from David E. Feller.
Dec 27 1995 Note:
Notice of Firm name change filed for Atty for Applt ( K. Richardson)
Jan 2 1996 Opening brief on the merits filed
Apps' answer brief/merits [asking 30 Days]
Jan 12 1996 Extension of time granted
Apps' answer brief/merits to 3/4/96
Jan 12 1996 Received application to file Amicus Curiae Brief
By Cigna Healthcare of California in support Respondents
Jan 23 1996 Application to appear as counsel pro hac vice granted
Application of David Feller for admission pro hac vice to appear on behalf of amicus curiae the Council of UCFA is granted.
Jan 26 1996 Received application to file Amicus Curiae Brief
Of Council Of University Of California Faculty Associations in support Of Resps
Jan 30 1996 Permission to file amicus curiae brief granted
Of Council Of University Of California Faculty Association in support Of Resps. Any answer May be Served & filed w/in 20 Days.
Jan 30 1996 Amicus Curiae Brief filed by:
Council of University of California Faculty Assoc. in support of Resps.
Jan 31 1996 Received application to file Amicus Curiae Brief
National Employment Lawyers Assoc. and California Employment Lawyers Assoc. Is support of Resp.(Engalla)
Feb 1 1996 Received application to file Amicus Curiae Brief
Of the Proposition 102 Enforcement Project in support Of Resps (Engalla)
By United Policyholders in support of Engalla (Resps)
By Congress of California Seniors and Consumer Action in support of Resps (Engalla)
By Consumers Union of U.S., Inc. Et Al. in support of Resps (Engalla)
Feb 6 1996 Permission to file amicus curiae brief granted
Of the United Policyholders in support Of Resps. Any answer May be Served & filed w/in 20 Days.
Feb 6 1996 Amicus Curiae Brief filed by:
The United Policyholders in support of Resps.
The Proposition 103 Enforcement Project in support of Resps. Any answer May be Served & filed w/in 20 Days.
Consumers Union of U.S., Inc., Et Al. in support of Resps. Any answer May be Served & filed w/in 20 Days.
Consumers Union of U.S., Inc., Et Al. in support of Resps.
The Congress of California Seniors and Consumer AC Tion. Any answer May be Served & filed w/in 20 Days.
The Congress of California Seniors and Consumer Action.
Feb 7 1996 Permission to file amicus curiae brief granted
National Employment Lawyers Assoc. Et Al. answer Due: Feb. 27,1996
Feb 7 1996 Amicus Curiae Brief filed by:
National Employment Lawyers Assoc. Et Al. answer Due: Feb. 27, 1996
Feb 20 1996 Response to Amicus Curiae Brief filed by:
Apps Permanente Group's to Amicus Council of University of Calif Faculty Assns.
Feb 26 1996 Response to Amicus Curiae Brief filed by:
Aplts. (the Permanente Medical Group Inc., Et Al.)
Feb 26 1996 Exhibits Lodged:
Aplts. (the Permanente Medical Group) Addendum of Additional Authorities in Suport of Combined answer. (one Volume)
Mar 4 1996 Answer brief on the merits filed
Aplts the Permanente Medical Group, Inc. Et Al.
Mar 5 1996 Exhibits Lodged:
Addendum of Non-California Authorities Cited in Aplt's answer brief on the merits filed 3/4/96 (the Permanente Medical Group, Et Al.) one Vol.
Mar 25 1996 Reply brief filed (case fully briefed)
Mar 25 1996 Request for Judicial Notice filed
Mar 25 1996 Received application to file Amicus Curiae Brief
By California Medical Assoc. in support of Appellants, the Permantent Medical Group Inc.
Apr 1 1996 Received application to file Amicus Curiae Brief
And brief of California Tort Reform in support of Appellants [brief Separate]
Apr 2 1996 Received application to file Amicus Curiae Brief
And brief of Calif Chamber of Commerce in support of Appellants
Apr 3 1996 Permission to file amicus curiae brief granted
Of California Medical Assoc. answer Due: 4-23-96
Apr 3 1996 Amicus Curiae Brief filed by:
Californai Medical Association Et Al. ** answer Due: 4-23-96 **
Apr 3 1996 Received application to file Amicus Curiae Brief
From Cigna Healthcare of Calif in support of Aplt's Permanenete Medical Group. AC Under Same Cover.
Apr 5 1996 Permission to file amicus curiae brief granted
Association for Calif Tort Reform in support of Appellants. answer Due: 4/24/96
Apr 5 1996 Amicus Curiae Brief filed by:
Association of Calif Tort Reform in support of App
Calif Chamber of Commerce in support of Apps. answer Due: 4/24/96
Calif Chamber of Commerce in support of Appellants
Apr 9 1996 Opposition filed
Of Aplts (the Permanente Medical Group,Inc.) to Resps request for Judicial Notice
Apr 12 1996 Permission to file amicus curiae brief granted
Cigna Healthcare of California in support of Apps answer Due: 5/3/96
Apr 12 1996 Amicus Curiae Brief filed by:
Cigna Healthcare of California in support of Apps
Apr 24 1996 Response to amicus curiae brief filed
Petitioner's consolidated answer to amicus briefs of Cigna Healthcare of California, California Chamber of Commerce, and the Association for California Tort Reform.
May 8 1996 Filed:
Petnrs. response to Opposition to Application requesting Judicial Notice (Perm)
Jun 20 1996 Letter sent to:
Applnts requesting Add'l briefing on the Following issue: did Applnts Commit Actual Fraud in the Inducement of an Arbitration Agreement in this >>> Case?(See Resps' Opening brief/merits pages 42-46) Appellants letter brief Is Due: 6/5/96. Resps May If They Wish, file A reply letter by 7/15/96
Jul 5 1996 Filed:
Letter brief of Applt [ the Permanente Medical Group, Etc.] as requested by the Court one 6-20-96
Jul 15 1996 Notice of substitution of counsel received
Filed Substitution of Attorney for David S. Rand (Engalla) [no longer with Carroll, Burdick et al.]
Jul 15 1996 Filed letter from:
Aty David S. Rand to Mr. Richardson's 7/5/96 Ltr.
Oct 16 1996 Filed:
Appellants' [Permanente ] Supplemental brief of New Authorities [ with permission]
Oct 30 1996 Filed:
Petitioners's reply to Defendants' Supplemental brief of New Authorities w/permission
Feb 26 1997 Case Ordered on Calendar:
4-8-97, 2pm, L.A.
Apr 8 1997 Cause Called and Argued (not yet submitted)
Apr 8 1997 Submitted by order
Jun 30 1997 Opinion filed: Judgment reversed
Remanded with directions. Majority Opinion by Mosk, J. -- joined by George C.J., Baxter, Werdegar & Chin JJ. Concurring Opinion by Kennard, J. Dissenting Opinion by Brown, J.
Letter from Applt Archer, Mccomas, Etc requesting Modification of opinion filed 6-30-97.
Jul 24 1997 Filed:
Letter dated 7-22-97 from David S. Rand in Oppo to Letter Re Modification.
Jul 30 1997 Opinion Modified -- no change in judgment
Jul 30 1997 Remittitur Issued
Aug 5 1997 Note:
Hold Record Until CA Calls and Asks for It.
Aug 13 1997 Received:
Receipt for Remittitur Signed by Susan Graham, Deputy Clerk Ca1/2
Paul N. Halvonik (Association for California Tort Reform)
Fred James Hiestand (233 "A" Street Suite 500)
Curtis A. Cole (Thelen,Marrin, Johnson & Bridges)
Kenneth R. Jr. Zuetel (Hammond Zuetel & Cahill)
James C. Sturdevant (The Sturdevant Law Firm)
Gail K. Hillebrand (1535 Mission Street)
David S. Rand (Law Offices)
Willis F. Mccomas (Archer, Mc Comas & Lageson)
Kennedy Park Richardson (Marion'S Inn)
Cliff Palefsky (Mcguinn, Hillsman, & Palefsky)
David Link (1750 Ocean Park Boulevard)
Stefan M. Rosenzweig (1535 Mission Street)
SCOCAL, Engalla v. Permanente Medical Group, Inc. , 15 Cal.4th 951 available at: (https://scocal.stanford.edu/opinion/engalla-v-permanente-medical-group-inc-31785) (last visited Wednesday November 13, 2019).