Madden v. Kaiser Foundation Hospitals

• Decision Date: 10 August 1976
• Citation: Madden v. Kaiser Foundation Hospitals, 17 Cal.3d 699, 131 Cal.Rptr. 882, 552 P.2d 1178 (Cal. 1976)
• Court: California Supreme Court
• Parties: , 552 P.2d 1178 Terry MADDEN, Plaintiff and Respondent, v. KAISER FOUNDATION HOSPITALS et al., Defendants and Appellants. L.A. 30526.

Page 882

131 Cal.Rptr. 882

17 Cal.3d 699, 552 P.2d 1178

Terry MADDEN, Plaintiff and Respondent, v.KAISER FOUNDATION HOSPITALS et al., Defendants and Appellants.

L.A. 30526.

Supreme Court of California In Bank.

Aug. 10, 1976.

Thelen, Marrin, Johnson & Bridges, James W. Baldwin and Curtis A. Cole, Los Angeles, for defendants and appellants.

Harney, Bambic & Moore, Richard B. Wolfe and David M. Harney, Los Angeles, for plaintiff and respondent.

Thomas V. Girardi and West & Girardi, Los Angeles, as amici curiae on behalf of plaintiff and respondent.

TOBRINER, Justice.

Defendants appeal from an order denying enforcement of an arbitration provision in a medical services contract entered into between the Board of Administration of the State Employees Retirement System(hereafter board) and defendant Kaiser Foundation Health Plan.¹Plaintiff, a state employee who enrolled under the Kaiser plan, contends that she is not bound by the provision for arbitration.The instant appeal presents the issue whether an agent or representative, contracting for medical services on behalf of a group of employees, has implied authority to agree to arbitration of malpractice claims of enrolled employees arising under the contract.

We shall explain that although the courts in the past regarded arbitration as an unusual and suspect procedure, they now recognize it as an accepted method of settlement of disputes.Since Civil Code section 2319 grants an agent the authority to do whatever is 'proper and usual' to carry out his agency, the board enjoyed an implied authority to agree to arbitration of malpractice claims of enrolled employees.

We shall point out that although plaintiff relies upon principles pertaining to adhesion contracts to bar enforcement of the arbitration provision, such precepts only affect contractual provisions imposed by the stronger party upon the weaker which unfairly limit the duties or liability of the stronger.They do not apply to the arbitration provision in this case, a product of negotiations between parties possessing parity of bargaining strength, providing merely for a forum for enforcement of the rights of enrolled employees rather than a substantive limitation of them.

We shall reject, finally, plaintiff's contention that the arbitration provision violates constitutional and statutory provisions protecting the right to trial by jury.Persons entering into arbitration agreements know and intend that disputes arising under such agreements will be resolved by arbitration, not by juries; neither decision nor policy calls for an explicit waiver of the parties' right to jury trial or for express conformance with Code of Civil Procedure section 631, the applicable procedural statute.

Accordingly, we reverse the order of the trial court and direct that court to grant Kaiser's motion to compel arbitration.

1.Summary of proceedings.

In 1945the Legislature enacted the State Employees' Retirement Act(Gov.Code, § 20000 et seq.) and delegated the administration of the act to a board selected pursuant to Government Code section 20100.Although this section has been amended frequently, it has at all times provided that at least one-third of the board members must be persons elected to that office by the public employees enrolled under the State Employees Retirement System.

In 1961, when California enacted the Meyers-Geddes State Employee's Medical and Hospital Care Act(Gov.Code, § 22751 et seq.), the Legislature entrusted the administration of this new enactment to the existing retirement board.To make group medical plans available to state employees, the act authorized the board to enter into renewable one-year contracts with carriers offering basic health plans.(Gov.Code, §§ 22774,22790,22793.)The act provides that state employees may enroll under any medical plan embodied in a contract negotiated between the board and the carriers (Gov.Code, § 22810); the state and the employees each contribute a portion of the cost of the plan.(Gov.Code, §§ 22825--22829.)The act requires that contracts must include a grievance procedure to protect the rights of the employees (Gov.Code, § 22793), but neither expressly grants nor withholds authority for the board to agree to arbitration of employees' malpractice claims.

Pursuant to the provisions of the act, the board negotiated an agreement with Kaiser Foundation Health Plan, a corporation, to provide medical, hospital, and related health care benefits to state employees and their families.The agreement states that it is 'subject to amendment . . . by mutual agreement between (Kaiser) and . . . Board without the consent or concurrence of the Members.By electing medical and hospital coverage pursuant to this Agreement, or accepting benefits hereunder, all Members . . . agree to all terms, conditions and provisions hereof.'

When plaintiff first enrolled under the Kaiser plan in 1965, it did not contain an arbitration provision.On April 1, 1971, however, the Kaiser Foundation Health Plan, anticipating the inclusion of an arbitration provision, mailed to all subscribers a brochure which, in describing the terms and benefits of the plan, stated that claims involving professional liability and personal injury must be submitted to arbitration.Shortly thereafter, on May 28, 1971, the Kaiser Foundation Health Plan and the board amended their contract in several respects and included a provision for binding arbitration of 'any claim arising from the violation of a legal duty incident to this Agreement.'²

On August 1, 1971, plaintiff underwent a hysterectomy at the Kaiser Hospital in Los Angeles.During the surgery, her bladder was perforated; blood transfusions were required; plaintiff thereafter contracted serum hepatitis.³

Plaintiff filed a malpractice complaint against Kaiser and the blood banks.Kaiser moved to stay the action and compel arbitration.Opposing this motion, plaintiff filed a declaration stating that because of absence from work by reason of illness she had not received the April 1971 brochure, that she was not aware of the execution of the arbitration agreement in May of 1971, and thus had no knowledge that the Kaiser plan, at the time of her operation, required arbitration of malpractice claims.

By order of April 22, 1974, the trial court denied the motion to stay the action and compel arbitration.Kaiser appeals from that order.⁴

2.The board, as agent for the employees, had implied authority to provide for arbitration of malpractice claims.

Government Code sections 22774,22790and22793 authorize the board to negotiate contracts for group medical plans for state employees.In negotiating such agreements and amendments the board acts as the agent or representative of the employees.(Blos v. Bankers Life Co.(1955)133 Cal.App.2d 147, 150, 283 P.2d 744;seeBoseman v. Insurance Co.(1937)301 U.S. 196, 204--205, 57 S.Ct. 686, 81 L.Ed. 1036;Elfstrom v. New York Life Ins. Co.(1967)67 Cal.2d 503, 512, fn. 5, 63 Cal.Rptr. 35, 432 P.2d 731.)⁵The acts of an agent within the scope of his authority bind the principal (seeCiv.Code, § 2330); application of this rule in the present context yields the conclusion that contract provisions, as well as amendments to the contract, ⁶ negotiated by the board within the scope of its authority as an agent, bind those employees who enroll under the contract.

This preliminary doctrinal recitation sets the stage for the principal issue of this appeal: whether the board, as agent of the employees, had implied authority to agree to a contract which provided for arbitration of all disputes, including malpractice claims, arising under that contract.That issue turns on the application of Civil Code section 2319, which authorizes a general agent 'To do everything necessary or proper and usual . . . for effecting the purpose of his agency.'For the reasons explained below, we conclude that arbitration is a 'proper and usual' means of resolving malpractice disputes, and thus that an agent empowered to negotiate a group medical contract has the implied authority to agree to the inclusion of an arbitration provision.

In Crofoot v. Blair Holding Corp.(1953)119 Cal.App.2d 156, 183--184, 260 P.2d 156, 170, ⁷ Justice Peters summarized the evolution of legal attitudes toward arbitration.'Arbitration has had a long and troubled history.The early common law courts did not favor arbitration, and greatly limited the powers of arbitrators.But in recent times a great change in attitude and policy has taken place.Arbitrations are now usually covered by statutory law, as they are in California.Such statutes evidence a strong public policy in favor of arbitrations, which policy has frequently been approved and enforced by the courts.'Subsequent decisions confirm the self-evident fact that arbitration has become an accepted and favored method of resolving disputes (Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc.(1972)24 Cal.App.3d 35, 43, 100 Cal.Rptr. 791;Federico v. Frick(1970)3 Cal.App.3d 872, 875, 84 Cal.Rptr. 74;Roberts v. Fortune Homes, Inc.(1966)240 Cal.App.2d 238, 244, 49 Cal.Rptr. 429), praised by the courts as an expeditious and economical method of relieving overburdened civil calendars (Player v. Geo. M. Brewster & Son, Inc.(1971)18 Cal.App.3d 526, 534, 96 Cal.Rptr. 149).

The transformation of legislative and judicial attitudes toward arbitration has encouraged a dramatic development in the use of this procedure.A 1952 study estimated that 'aside from personal injury cases and cases in which the government is a party, more than 70 percent of the total civil litigation is decided through arbitration rather than by the courts'(Mentschikoff, The Significance of Arbitration--a Preliminary Inquiry (1952) 17 Law &Contemp.Prob. 698).In the following decades arbitration further expanded its role to encompass in certain circumstances disputes requiring evaluation of...