Buckhorn v. St. Jude Heritage Medical Group

• Decision Date: 31 August 2004
• Docket Number: No. G032748.,G032748.
• Citation: 18 Cal.Rptr.3d 215,121 Cal.App.4th 1401
• Court: California Court of Appeals Court of Appeals
• Parties: Carl W. BUCKHORN, Plaintiff and Respondent, v. ST. JUDE HERITAGE MEDICAL GROUP et al., Defendants and Appellants.

18 Cal.Rptr.3d 215

121 Cal.App.4th 1401

Carl W. BUCKHORN, Plaintiff and Respondent, v. ST. JUDE HERITAGE MEDICAL GROUP et al., Defendants and Appellants.

No. G032748.

Court of Appeal, Fourth District.

August 31, 2004.

Paul, Hastings, Janofsky & Walker, Peter M. Stone, Daniel M. Glassman and Michael J. Rozak, Costa Mesa, for Defendant and Appellant St. Jude Hospital Yorba Linda.

Sheppard, Mullin, Richter & Hampton, William V. Whelen and Karin Dougan Vogel, San Diego, for Defendant and Appellant St. Jude Heritage Medical Group.

Law Offices of Eric Y. Nishizawa, Eric Y. Nishizawa; Law Offices of Ricardo A. Torres II and Ricardo A. Torres II, Los Angeles, for Plaintiff and Respondent.

OPINION

ARONSON, J.

Defendants St. Jude Heritage Medical Group (Medical Group) and St. Jude Heritage Health Foundation (Health Foundation) appeal from an order denying their motions to compel arbitration in a wrongful termination action filed by Carl Buckhorn, a physician formerly employed by the Medical Group. Buckhorn also sued defendants for various torts allegedly committed after he was discharged, including defamation and interference with prospective economic advantage. Defendants contend Buckhorn is subject to the arbitration clause in his employment agreement, which provides for mandatory arbitration of disputes "concerning the enforcement or the interpretation of any provisions of this Agreement." Buckhorn argues the arbitration clause does not apply because the defendants' tortious conduct occurred after he was terminated.

We reject Buckhorn's temporal test and conclude his tort claims fall within the scope of the arbitration clause because they stem from the contractual relationship between the parties. Because we conclude the order denying arbitration under the employment agreement was erroneous, we do not reach defendants' second argument that Buckhorn, as an employee and part owner of the Medical Group, was bound by a separate arbitration provision contained in a Professional Services Agreement (PSA) between the Medical Group and the Health Foundation. Accordingly, we reverse.

I FACTS AND PROCEDURAL BACKGROUND

In May 1996, Buckhorn, a board certified internist, entered into a 45-page employment agreement with the Medical Group. The contract contained a binding arbitration clause, operable "[i]n the event that a dispute arises between the parties concerning the enforcement or the interpretation of any provisions of this Agreement. ..."¹ (Italics added.)

Paragraph 33 of the employment agreement referred to a PSA between the Medical Group and the Health Foundation. The PSA established a "medical practice foundation relationship" between the parties (see Health & Saf.Code, § 1206, subd. (a)), whereby the Health Foundation would provide healthcare facilities and administrative support in exchange for medical services rendered by the Medical Group's physicians. Under paragraph 33, the Health Foundation was named as a third party beneficiary to the employment agreement between Buckhorn and the Medical Group.

In July 1997, the Medical Group and the Health Foundation amended the PSA. As pertinent here, paragraph 17.10 provided for mandatory arbitration of "[a]ny dispute between the parties." In paragraph 17.15, the parties excluded potential third party beneficiary claims under the PSA as follows: "No Third Party Beneficiaries. This Agreement has been made and entered into solely for the benefit of [Health Foundation] and [Medical Group], and their respective permitted successors and assigns. Nothing in this Agreement is intended to confer any rights or remedies under or by reason of this Agreement on any persons or entities who are not [parties] to this Agreement. Nothing in this Agreement is intended to relieve or discharge the obligation or liability of any third persons to any party to this Agreement."

The Medical Group terminated Buckhorn's employment in September 2001, and in December 2002, he filed a complaint for fraud in the inducement, wrongful termination, defamation, intentional and negligent interference with prospective business advantage, unfair competition, constructive trust, and accounting.

According to Buckhorn's complaint, he accepted a position with the Medical Group when he was promised his initial employment contract would be replaced later with a compensation formula similar to other partners and shareholders. He was assured he would be permitted to practice medicine "the way `he practiced medicine,'" which apparently included alternative therapies. Relying on these promises, he brought patients into the Medical Group and declined to seek immediate compensation for doing so. Defendants led him to believe they would fulfill their promises. He was placed into a "management system where it appeared to him that he was a partner/shareholder/owner," since he managed his own 401(k) retirement account, and funds were withheld from his paycheck for "administrative purposes." In April 1997, he was given "1 share" in the Medical Group and received another share in April 1998.

Buckhorn's relationship with the Medical Group deteriorated over time, and on the evening of September 11, 2001, he was terminated "without cause." The Medical Group subsequently published a letter to Buckhorn's patients explaining that Buckhorn no longer was with the Medical Group, and offered to direct patients to other Medical Group physicians. Buckhorn also alleged that patients were alternatively informed Buckhorn left the group because of marital problems, mental problems, loss of his insurance coverage, and that he was no longer practicing medicine, or that he had "`just disappeared.'"

Relying on both arbitration clauses, defendants Medical Group and Health Foundation moved to compel arbitration. The Medical Group invoked its right to arbitrate as a party to their employment agreement with Buckhorn, and Health Foundation asserted it was a third party beneficiary of the same contract. As for the PSA, both entities claimed Buckhorn was subject to the arbitration clause as an employee and part owner of the Medical Group.

Buckhorn opposed the motion, arguing the right to arbitrate had been waived when the defendants answered the complaint and failed to make a written demand.² He also claimed the PSA arbitration clause did not apply because he was a nonsignatory, and reliance on the PSA "would include the more costly JAMS service" and leave open the possibility he would have to bear opposing costs and fees in violation of Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 99-113, 99 Cal.Rptr.2d 745, 6 P.3d 669. Neither of these arguments are raised on appeal. Finally, he asserted the arbitration clause in the employment agreement only governed "contract related actions," i.e., his fraudulent inducement and wrongful termination causes of action. Consequently, he argued his tort causes of action were not covered because they were based on damage to his reputation occurring after his wrongful termination. He conceded Health Foundation was a third party beneficiary and entitled to invoke the arbitration clause in the employment agreement.

The trial court denied the motion to compel arbitration in August 2003. Focusing solely on the PSA, the court concluded defendants could not invoke the arbitration clause because Buckhorn was not a party to the contract and was specifically excluded as a third party beneficiary. The trial court did not refer to the arbitration clause in the employment agreement in its final order.

Defendants timely filed an appeal from the denial of their petition to compel arbitration. (Code Civ. Proc., § 1294, subd. (a); Coast Plaza Doctors Hosp. v. Blue Cross of California (2000) 83 Cal.App.4th 677, 683, 99 Cal.Rptr.2d 809 (Coast Plaza).)

II DISCUSSION

A. Standard of Review

Determining the validity of an arbitration clause, like the interpretation of any contract, is a question of law unless the issue turns on the credibility of extrinsic evidence. (24 Hour Fitness, Inc. v. Superior Court (1998) 66 Cal.App.4th 1199, 1212, 78 Cal.Rptr.2d 533.) No extrinsic evidence was introduced below, therefore, our review is de novo. (Maggio v. Windward Capital Management Co. (2000) 80 Cal.App.4th 1210, 1214, 96 Cal.Rptr.2d 168.) The burden is on "the party opposing arbitration to demonstrate that an arbitration clause cannot be interpreted to require arbitration of the dispute." (Coast Plaza, supra, 83 Cal.App.4th at pp. 686-687, 99 Cal.Rptr.2d 809.) Any doubt on the issue must be resolved in favor of arbitration. (Id. at p. 687, 99 Cal.Rptr.2d 809.)

B. The Employment Agreement

We first turn to the employment contract between Buckhorn and the Medical Group. That agreement provided for arbitration "[i]n the event that a dispute arises between the parties concerning the enforcement or the interpretation of any provisions of this Agreement...." The Medical Group and Health Foundation contend this provision required Buckhorn to arbitrate all claims raised in his complaint. Buckhorn argues the scope of the arbitration clause is too narrow.

Vianna v. Doctors' Management Co. (1994) 27 Cal.App.4th 1186, 33 Cal.Rptr.2d 188 (Vianna), is dispositive. There, the employment agreement required...