Groom, v. Health Net

• Decision Date: 09 August 2000
• Citation: 82 Cal.App.4th 1189,98 Cal.Rptr.2d 836
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 2 Dist. 2000) SARAH GROOM, Plaintiff and Respondent, v. HEALTH NET et al., Defendants and Appellants. B131271 Filed

98 Cal.Rptr.2d 836 (Cal.App. 2 Dist. 2000)

SARAH GROOM, Plaintiff and Respondent, v. HEALTH NET et al., Defendants and Appellants.

B131271

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, SECOND APPELLATE

DISTRICT, DIVISION FOUR

Filed 8/9/00

APPEAL from an order of the Superior Court of Los Angeles County, William J. McVittie, Judge. Reversed with directions.

(Super. Ct. No. BC150369)

O'Flaherty, Cross, Martinez, Ovando & Hatton, Michael M. Martinez, and Robert M. Dato; Greines, Martin, Stein & Richland, Robert A. Olson, and Peter O. Israel for Defendants and Appellants.

Shernoff, Bidart, Darras & Dillon, Michael J. Bidart, David T. Bamberger, and Jeffrey Isaac Ehrlich for Plaintiff and Respondent.

CERTIFIED FOR PUBLICATION

VOGEL (C.S.), P.J.

INTRODUCTION

Plaintiff and respondent Sarah Groom (Groom) sued defendants and appellants Health Net and Health Systems International, Inc. (collectively Health Net) and others not party to this appeal. Groom, a subscriber of a health plan administered by Health Net, a duly-organized health maintenance organization (HMO), alleges that as a result of Health Net's refusal or failure to timely provide a neurological examination, a prescription drug, and an MR angiogram and cardiac workup, Groom suffered a disabling stroke.

After demurring to Groom's original, first amended, second amended, and third amended complaints, Health Net moved to compel arbitration of the dispute pursuant to the arbitration clause contained in the health plan. (Code Civ. Proc., 1281.2.) The trial court denied Health Net's petition to compel arbitration, concluding that Health Net waived its right to compel arbitration when it "entered the litigation arena" by demurring and waited for almost one year before "seek[ing] to remove this suit to arbitration." Health Net appeals from the order denying the petition to compel arbitration. (Code Civ. Proc., 1294, subd. (a).)

We reverse on the ground that Health Net's participation in litigation by way of demurrers did not, in the absence of prejudice to Groom, waive Health Net's right to enforce the arbitration agreement between the parties.

FACTUAL AND PROCEDURAL BACKGROUND

Health Net is an HMO which provides prepaid medical coverage to its subscribers. Groom became enrolled in the plan under a group agreement between Health Net and St. Anne's Maternity Home. The plan's evidence of coverage booklet provides that "[i]n the event of any dispute or controversy concerning the construction, interpretation, performance, or breach of this Evidence of Coverage arising between the Employer, a Subscriber or eligible Family Member, or the heir-at-law or personal representative of such person, as the case may be, and Health Net or any Participating Medical Group, such dispute or controversy shall be submitted to arbitration under the appropriate rules of the American Arbitration Association. . . . This binding arbitration provision does not apply to claims, disputes, or controversies relating solely to alleged professional negligence (medical malpractice)."

Groom filed her original complaint on May 20, 1996. It named Health Net and the medical corporations and doctors who actually provided medical services to her. It alleged nine causes of action, seven against all defendants. These were: (1) medical malpractice, (2) breach of the covenant of good faith and fair dealing, (3) breach of contract, ((4) and (5) related only to the medical providers), (6) breach of fiduciary duty, (7) negligent infliction of emotional distress, (8) intentional infliction of emotional distress, and (9) unfair business practices for which injunctive and equitable relief was sought pursuant to Business and Professions Code section 17200.

Health Net demurred on grounds that: (as to 1) medical malpractice does not lie against Health Net who is not a provider of medical services licensed to practice medicine; (as to 2) breach of the covenant of good faith and fair dealing was not set forth with sufficient specificity as to the contract obligations breached nor were facts alleged which raised tort liability as distinguished from mere breach of contract; (as to 3) breach of contract was not sufficiently described because the contract's terms were not spelled out; (as to 6) an HMO owes no fiduciary duty; (as to 7) negligent infliction of emotional distress was merely duplicative of the invalid claim of medical malpractice; (as to 8) intentional infliction of emotional distress failed for lack of sufficient factual allegations showing outrageous conduct; and (as to 9) the allegedly unlawful business practices involving the financial incentives in a typical HMO plan are expressly authorized by statute and subject to regulation only by the Commissioner of Corporations.

Pending its demurrer to the original complaint, Health Net served Groom with form interrogatories, special interrogatories, requests for admission, and requests for production of documents. However, throughout the demurrer processes, Groom never responded to these requests, and Health Net never sought to enforce them.

The trial court did not rule on Health Net's demurrer to the original complaint, because Groom filed a first amended complaint. The first amended complaint was essentially the same as the original complaint. Health Net demurred to the first amended complaint on the same grounds as before. The trial court sustained the demurrer with leave to amend.

Groom filed a second amended complaint which again was essentially similar, and Health Net demurred again. The trial court sustained the demurrer with leave to amend, but limited the leave to amend the first cause of action, ruling that Groom had leave to plead ordinary negligence against Health Net, but not medical malpractice. The court also suggested that negligent infliction of emotional distress duplicated the cause of action for negligence and was inconsistent with intentional infliction of emotional distress.

Groom filed a third amended complaint. As to Health Net or all defendants, it alleged the following causes of action: ((1) concerned only the medical providers), (2) negligence, (3) breach of the covenant of good faith and fair dealing, (4) breach of contract, ((5) concerned only the medical providers), (6) breach of fiduciary duty, ((7) was later withdrawn), (8) intentional infliction of emotional distress, and (9) injunctive and equitable relief on behalf of the general public pursuant to Business and Professions Code section 17200 to enjoin unlawful business practices in the future. The third amended complaint, for the first time, attached as an exhibit the evidence of coverage booklet.

Health Net demurred to the third amended complaint. Health Net's grounds relating to breach of fiduciary duty (6), intentional infliction of emotional distress (8), and unlawful business practices (9) were essentially the same as before. As to negligence (2), Health Net contended the allegations still amounted to a claim of medical malpractice rather than negligent denial of benefits. As to breach of the covenant of good faith and fair dealing (3) and breach of contract (4), Health Net contended that although finally the contract had been attached as an exhibit, the allegations were still too vague about the specific contractual obligations breached.

The trial court overruled the demurrers, except as to breach of fiduciary duty (6), which it sustained without leave to amend, and negligent infliction of emotional distress (7), which it sustained without leave, and which in any event Groom had withdrawn from pleading.

The ruling on the demurrer to the third amended complaint occurred on June 27, 1997. On July 25, 1997, one month after the ruling on the third amended complaint and over 11 months after Health Net was served with the original complaint, Health Net filed its petition to compel arbitration. Health Net argued that all the causes of action remaining against it arise from Health Net's contractual duties to Groom, and "the entirety of the causes of action are subject to binding arbitration pursuant to the contract between the parties herein. Plaintiff has in fact attached a copy of the agreement to her Third Amended Complaint which contains a plain, clear and enforceable arbitration clause. [] Based on the foregoing, Health Net herein moves to compel the remaining causes of action into arbitration pursuant to [Groom's] express written agreement to do so."

Groom filed opposition to Health Net's petition to compel arbitration. Groom argued, among other grounds for opposing arbitration, that Health Net's delay in seeking arbitration and its litigation of the demurrers waived any right to seek arbitration. The trial court initially granted Health Net's petition. After lengthy procedural delays involving a motion for reconsideration and a writ proceeding in this appellate court to compel reconsideration, the trial court granted reconsideration and then denied the petition to compel arbitration.¹ The court's minute order states, "A review of the pleadings and documents filed herein leads this Court to conclude that the defendants have waived the arbitration process provided for in Code of Civil Procedure section 1281.2. [] Plaintiff commenced this suit on August 5, 1996.[FN2] Defendants entered the litigation arena and did not seek to remove this suit to arbitration until July 25, 1997-almost one year later . . . . [] It defeats the purpose of arbitration to have the parties enter the arena of litigation and joust for an extended period of time, later seeking an 'election' to abandon the contest by way of compulsory arbitration."

DISCUSSION

A party to an arbitration agreement may by conduct waive its right to compel arbitration. There is no single test for the type of conduct which may waive arbitration rights, but the conduct must have caused prejudice to the opposing party. The California Supreme Court has summarized: "We have stressed the significance...