Engalla v. Permanente Medical Group, Inc.

• Decision Date: 03 August 1995
• Docket Number: A063427 and A063547,Nos. A062642,s. A062642
• Citation: 43 Cal.Rptr.2d 621,37 Cal.App.4th 497
• Court: California Court of Appeals Court of Appeals
• Parties: Previously published at 37 Cal.App.4th 497, 41 Cal.App.4th 1698, 46 Cal.App.4th 654, 51 Cal.App.4th 134 37 Cal.App.4th 497, 41 Cal.App.4th 1698, 46 Cal.App.4th 654, 51 Cal.App.4th 134, 95 Cal. Daily Op. Serv. 6181, 95 Daily Journal D.A.R. 10,515 Nida ENGALLA et al., Plaintiffs and Respondents, v. The PERMANENTE MEDICAL GROUP, INC., et al., Defendants and Appellants. The PERMANENTE MEDICAL GROUP, INC., et al., Petitioners, v. ALAMEDA COUNTY SUPERIOR COURT, Respondent; Nida ENGALLA et al., Real Parties in Interest. Willis F. McCOMAS et al., Petitioners, v. ALAMEDA COUNTY SUPERIOR COURT, Respondent; Nida ENGALLA et al., Real Parties in Interest.

Page 621

43 Cal.Rptr.2d 621

Previously published at 37 Cal.App.4th 497, 41 Cal.App.4th 1698, 46 Cal.App.4th 654, 51 Cal.App.4th 134

37 Cal.App.4th 497, 41 Cal.App.4th 1698, 46 Cal.App.4th 654,

51 Cal.App.4th 134, 95 Cal. Daily Op. Serv. 6181,

95 Daily Journal D.A.R. 10,515

Nida ENGALLA et al., Plaintiffs and Respondents, v. The PERMANENTE MEDICAL GROUP, INC., et al., Defendants and Appellants.

The PERMANENTE MEDICAL GROUP, INC., et al., Petitioners, v. ALAMEDA COUNTY SUPERIOR COURT, Respondent;

Nida ENGALLA et al., Real Parties in Interest.

Willis F. McCOMAS et al., Petitioners, v. ALAMEDA COUNTY SUPERIOR COURT, Respondent;

Nida ENGALLA et al., Real Parties in Interest.

Nos. A062642, A063427 and A063547.

Court of Appeal, First District, Division 2, California.

Aug. 3, 1995.

As Modified on Denial of Rehearing Aug. 31, 1995.

Review Granted Nov. 2, 1995.

David S. Rand, Rosemary Springer, Carroll, Burdick & McDonough, San Francisco, for plaintiff s/respondents/appellants & real party in interest Nida Engalla et al.

Kennedy P. Richardson, Mark Palley, Oakland, for defendants/appellants/respondents & petitioner The Permanente Medical Group et al.

Willis F. McComas, Archer, McComas & Lageson, Walnut Creek, for defendants/appellants/respondents Permanente Medical Group et al. & petitioner Willis F. McComas et al.

David E. Feller, Robert C. Post, Attys. for Council of U.C. Faculty Ass'n U.C. School of Law, Boalt Hall, Berkeley, for amicus curiae on behalf of respondents Nida Engalla et al.

PHELAN, Associate Justice.

These consolidated proceedings involve a broad attack on the arbitration program established by The Permanente Medical Group, Inc., Kaiser Foundation Hospitals, and Kaiser Foundation Health Plan, Inc. (collectively, hereinafter, Kaiser or appellants) for medical malpractice claims. In appeal No. A062642, Kaiser seeks review of an order by which the Alameda County Superior Court denied its petition to compel arbitration of the claims asserted by respondents, who are members of the family and representatives of the estate of Wilfredo Engalla (collectively, hereinafter, the Engallas or respondents), a Kaiser patient who died of lung cancer in October 1991. ¹ The trial court refused to enforce an arbitration provision contained in the Group Medical and Hospital Service Agreement (the Service Agreement) under which Mr. Engalla had health care coverage holding that Kaiser had engaged in fraud in the inducement of the arbitration provision. This decision was based on findings that Kaiser knowingly misrepresented the speed and efficiency of its arbitration program, and that the collective bargaining agent for Mr. Engalla's employer reasonably relied on those representations in agreeing to accept the arbitration clause in the Service Agreement.

The trial court also found that Kaiser and its lawyers committed fraud "in the specific application" of the arbitration provision by engaging in dilatory behavior while defending against the Engallas' claims in the arbitration proceeding that was abandoned after Mr. Engalla died. Apparently, the trial court accepted respondents' argument that Kaiser was engaging in delaying tactics in order to minimize its exposure for noneconomic damages to Mr. and Mrs. Engalla. Finally, the trial court found that the Kaiser arbitration program is oppressive and unconscionable as currently structured, and that it would be inequitable to require the Engallas to arbitrate their claims in such a "corrupt" forum.

In two related writ proceedings, Nos. A063427 and A063547, Kaiser and its attorneys seek a writ of mandate directing the superior court to vacate its order compelling disclosure of 14 documents on the ground that they fell within the "fraud exception" to the attorney-client privilege. The Engallas cross-appeal from this discovery order, arguing that, by partially disclosing many details about the adoption and operation of its arbitration program, Kaiser has waived any applicable privilege or work product protections for all documents relating to its arbitration program. The Engallas further contend that Kaiser had a fiduciary duty to fully apprise its patients of the procedures in use and the implications of accepting the terms of the arbitration program, which duty was breached by both inaccurate and incomplete disclosures in its arbitration materials. They claim, therefore, the trial court order did not go far enough to require disclosure of attorney-client communications and work product generated by Kaiser lawyers on the subject of its arbitration program.

We conclude that: (1) the trial court's finding of fraud in the inducement of the arbitration provision is not supported by substantial evidence; (2) the Engallas' claim of "fraud in the application" of the arbitration provision must be submitted to the arbitrator; (3) the trial court's finding that the Kaiser arbitration program is oppressive and unconscionable as currently structured and administered is not supported by substantial evidence; (4) all of the Engallas' claims--including their causes of action for professional negligence, fraud, breach of contract, breach of the covenant of good faith and fair dealing, and abuse of process--are arbitrable; and (5) the trial court erred by refusing to enforce the arbitration provision in the Service Agreement. Accordingly, we reverse the decision of the trial court and remand with directions to enter an order granting appellants' petition to compel arbitration of the claims asserted in the Engallas' complaint.

In light of our ruling on the enforceability of the arbitration provision, we vacate the trial court's order compelling disclosure of certain attorney-client communications and attorney work product, but do so without prejudice to respondents' right to renew their motion before the neutral arbitrator, to the extent those materials--as well as others that were sought but not ordered disclosed--are relevant to respondents' remaining claims.

I. FACTUAL AND PROCEDURAL BACKGROUND

Wilfredo Engalla (hereinafter, Mr. Engalla) immigrated to the United States in 1980, where he commenced employment with Oliver Tire & Rubber Company as a certified public accountant. At that time, Mr. Engalla was invited to enroll himself and his immediate family in a health plan offered by Kaiser. Oliver Tire & Rubber had offered its employees health care through Kaiser since 1976, and its plan was renewed annually thereafter. Mr. Engalla enrolled with Kaiser by signing an application form which stated, in relevant part: "I apply for health plan membership for the persons listed and agree that we shall abide by the provisions of the Service Agreement and health plan regulations. If the agreement so provides, any monetary claim asserted by a Member or the Member's heirs or personnel [sic ] representative on account of bodily injury, mental disturbance or death must be submitted to binding arbitration instead of a court trial." (Emphasis added.)

A. The Underlying Medical Malpractice Claim.

In March 1986, Mr. Engalla presented himself to Kaiser's Hayward facility complaining of a continuing cough and shortness of breath. Tests were administered, including radiologic examinations, and Kaiser's radiologist noted abnormalities of his right lung. Previous radiologic studies performed by Kaiser in 1982 at the same Hayward facility had been inadvertently destroyed, but would otherwise have confirmed that the abnormal condition had only recently developed. In his notes from the 1986 examination, the radiologist recommended follow-up if the films could not be located, but none was ever performed. For several years thereafter, Mr. Engalla repeatedly presented with complaints symptomatic of respiratory disease. On some occasions he was given an appointment with a physician, but on other occasions he was only permitted to see nurse practitioners. For years, he was given inhalation medication, but Kaiser failed to perform diagnostic tests that might have revealed the developing cancer. Instead, he was repeatedly diagnosed with common colds and allergies. X-rays taken in 1991 finally revealed adenocarcinoma of the lung, a type of lung cancer, but by then Mr. Engalla's condition was inoperable.

B. The Arbitration Service Agreement.

On or about May 31, 1991, Mr. Engalla and members of his immediate family served on Kaiser a written demand for arbitration of their claims that Kaiser health care professionals had been negligent in failing to diagnose Mr. Engalla's lung cancer sooner. Apparently, the Engallas' attorney, Mr. Rand, believed they were required to do so pursuant to the Service Agreement which was in effect at the time. ² 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 two party arbitrators "shall" designate a third, neutral arbitrator within 30 days thereafter. 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 Service Agreement further provides a broad statement governing its interpretation and, in that regard, states that appellant Kaiser Foundation Health Plan "is a named fiduciary to review claims under the Service Agreement." The nature of the claims for which Health Plan promises to act as a fiduciary is not specified, but a review of the Service Agreement reveals that the term "claims" appears in section 8, entitled "Arbitration of Claims."

The program was originally...