Heritage v. Superior Court

• Citation: 158 Cal.App.4th 1146,70 Cal.Rptr.3d 645
• Decision Date: 14 January 2008
• Docket Number: No. B201298.,B201298.
• Court: California Court of Appeals
• Parties: HERITAGE PROVIDER NETWORK, INC., et al. Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent; Eastland Medical Group, Inc., Real Party in Interest.

70 Cal.Rptr.3d 645

158 Cal.App.4th 1146

HERITAGE PROVIDER NETWORK, INC., et al. Petitioners, v. The SUPERIOR COURT of Los Angeles County, Respondent;

Eastland Medical Group, Inc., Real Party in Interest.

No. B201298.

Court of Appeal, Second District, Division 7.

January 14, 2008.

Bingham McCutchen LLP, Jonathan S. Gluck, Melissa Fien, Santa Monica, Thomas S. Hixson, and Tanya King Dumas, San Francisco, for Petitioners Heritage Provider Network, Inc. and Regal Medical Group, Inc.

No appearance for Respondent.

The Hernandez Law Group, Don A. Hernandez, La-Canada-Flintr, Robert A. Olson, Los Angeles, and Agnes Markarian for Real Party in Interest.

PERLUSS, P.J.

Following failed negotiations regarding the potential purchase of Eastland Medical Group, Inc. (Eastland) by Heritage Provider Network, Inc. (Heritage), Eastland sued Heritage, two related medical groups, Regal Medical Group, Inc. (Regal) and West Covina Plan IPA, Inc. (Covina), and four individual physicians who had terminated their relationship with Eastland and entered into agreements with Heritage. Eastland's complaint alleged causes of action for breach of contract against the medical groups and the doctors and for inducing breach of contract and improper disclosure of confidential information and trade secrets against the medical groups.

After the physicians successfully moved to compel arbitration of Eastland's breach of contract claims, the trial court denied Heritage and Regal's motion to stay the litigation notwithstanding its finding that similar issues were involved in the arbitration and court proceedings. Because Code of Civil Procedure section 1281.4 ¹ mandates a stay of judicial proceedings pending completion of the arbitration in these circumstances, we grant Heritage and Regal's petition for writ of mandate and direct respondent superior court to vacate its order denying the motion to stay the action pending the conclusion of arbitration proceedings and to issue a new order granting the motion.

FACTS AND PROCEDURAL BACKGROUND

1. The Complaint

Eastland is a professional medical corporation that operates as an independent practice association (commonly referred to as an IPA) consisting of approximately 150 primary care and 280 specialist physicians who provide health care in the San Gabriel and Pomona Valleys and the Inland Empire.² In connection with discussions about the potential purchase of Eastland by Heritage, a corporation that contracts with health plans to provide care to health plan members, Eastland and Heritage executed a confidentiality agreement on November 6, 2006 prohibiting Heritage from disclosing Eastland's confidential information "to or for the benefit of any person or entity other than [Heritage]."³

After the acquisition negotiations foundered, a number of physicians terminated their contracts with Eastland and entered new agreements with Heritage. On December 14, 2006 Eastland filed a complaint against Heritage, two allegedly affiliated IPAs, Regal and Covina,⁴ and four physicians with whom Eastland had contracted to provide medical services "to prevent the destruction of its network of primary care physicians."⁵ In its first cause of action Eastland alleged Heritage had breached the confidentiality agreement by disclosing to Regal and Covina Eastland's confidential information, including the number and identity of Eastland's health plan members, the identities of Eastland's primary care physicians and the financial terms of Eastland's contracts with both its physicians and the health plans.

In the second cause of action, which it only asserted against the physicians, Eastland alleged the physicians had each breached the primary care physician provider agreement (PCP agreement) they had entered into with Eastland, which proscribes use or disclosure of Eastland's trade secrets for any purpose other than that which is medically necessary to provide services to Eastland's health plan members.⁶ Eastland alleged the physicians wrongfully disclosed to Heritage, Regal and/or Covina confidential information regarding Eastland's plan members as well as contract terms between the physicians and Eastland, including the amount of capitation payments Eastland paid them⁷ and the services that were excluded from the capitation agreement.⁸ Eastland further alleged the physicians had breached the PCP agreement by failing to provide sufficient notice of termination. Finally, Eastland alleged the PCP agreement prohibits the physicians from soliciting Eastland health plan members and then, in the fifth and sixth causes of action, alleged Heritage and Regal induced the physicians to breach their contract by persuading them to do just that. Even though Eastland does not expressly allege in its breach of contract cause of action that the physicians wrongfully solicited Eastland's health plan members, in the proceedings before the trial court and in this writ proceeding, all parties have considered this one of the bases for the contract claim. For example, in its return by answer to the order to show cause, Eastland states it "has alleged two material breaches by the physicians: solicitation and disclosure of confidential information."

Based upon Heritage's use and disclosure of Eastland's confidential information allegedly obtained during the parties' negotiations, Eastland alleged claims against Heritage, Regal and Covina for violation of the Uniform Trade Secrets Act, Civil Code section 3426 et seq. (third cause of action), intentional interference with contractual relations (fourth cause of action), intentional interference with prospective economic advantage (fifth cause of action) and violation of Business and Professions Code section 17200 (sixth cause of action). An allegation common to these claims is that Heritage, Regal and Covina induced the physicians to breach their PCP agreements by terminating them immediately, rather than upon 90-days notice, by disclosing Eastland's confidential information and, as discussed above, by soliciting Eastland's health plan members.

3. Grant of the Physicians' Petition To Compel Arbitration; Denial of the IPAs' Motion To Stay; and the Writ Petition

The physicians' motion to compel arbitration pursuant to the arbitration provision in the PCP agreement was granted on June 4, 2007. Arbitration was scheduled for December 17, 2007.

On July 16, 2007 the trial court denied Heritage and Regal's motion to stay the remainder of the litigation pending the outcome of the arbitration.⁹ The court stated, "I'm not finding that there are no similar issues or no issues that aren't exactly the same. But I am finding that not all issues are the same, and in the balance of things there's not enough similar issues to stay the civil litigation while the arbitration's pending." Disagreeing with Heritage and Regal's contention one common issue was sufficient to mandate a stay, the court observed, "If all it takes is one same issue then it should be an easy writ to get and I won't take offense if I'm wrong."

Heritage and Regal petitioned this court for a writ of mandate compelling the trial court to vacate its order denying their motion for a stay and to issue a new order granting the motion. Heritage and Regal also sought an immediate stay of the trial court proceedings. On October 2, 2007 we issued an order to show cause why the requested relief should not be granted and the following week stayed all trial court proceedings.

DISCUSSION

When a trial court "has ordered arbitration of a controversy which is an issue involved in an action or proceeding pending before" the court, it "shall, upon motion of a party ... stay the action or proceeding until the arbitration is had in accordance with the order to arbitrate ...." (§ 1281.4.)¹⁰ "It is irrelevant under the statute whether the movant is a party to the arbitration agreement." (Marcus v. Superior Court (1977) 75 Cal. App.3d 204, 209, 141 Cal.Rptr. 890.) Any party to a judicial proceeding "is entitled to a stay of those proceedings whenever (1) the arbitration of a controversy has been ordered, and (2) that controversy is also an issue involved in the pending judicial action." (Ibid.) "The purpose of the statutory stay is to protect the jurisdiction of the arbitrator by preserving the status quo until arbitration is resolved." (Federal Ins. Co. v. Superior Court (1998) 60 Cal.App.4th 1370, 1374, 71 Cal.Rptr.2d 164 (Federal Ins.).) "In the absence of a stay, the continuation of the proceedings in the trial court disrupts the arbitration proceedings and can render them ineffective." (Id. at p. 1375, 71 Cal.Rptr.2d 164.)

The trial court's belief one overlapping issue was insufficient to justify imposition of a stay was incorrect. Section 1280, subdivision (c), defines "controversy" as "any question arising between parties to an agreement whether such question ,is one of law or of fact or both." Neither section 1280 nor section 1281.4 is written in the plural: A controversy can be a single question of law or fact, and a stay shall be issued upon proper motion if the court has ordered arbitration of a controversy that is also an issue involved in an action or proceeding pending before it. (See Common Cause v. Board-of Supervisors (1989) 49 Cal.3d 432, 443, 261 Cal. Rptr. 574, 777 P.2d 610 [word "shall" is ordinarily construed as mandatory, while "may" is ordinarily construed as permissive].) Thus, a single overlapping issue is sufficient to require imposition of a stay. Of course, in order to preserve the goal of arbitration as a "speedy and relatively inexpensive method of resolving disputes" (Federal Ins., supra, 60 Cal.App.4th at p. 1374, 71 Cal.Rptr.2d 164) without unduly prejudicing parties who have not agreed to arbitration or who have agreed to arbitrate only certain issues, "[i]f the issue which is the controversy subject to arbitration is severable, the stay may be with respect to that issue only." (§ 1281.4, 3d par.; see Federal Ins.,...