St. Agnes Medical Center v. PacifiCare

Decision Date18 December 2003
Docket NumberNo. S111323.,S111323.
Citation8 Cal.Rptr.3d 517,82 P.3d 727,31 Cal.4th 1187
CourtCalifornia Supreme Court
PartiesSAINT AGNES MEDICAL CENTER, Plaintiff and Respondent, v. PACIFICARE OF CALIFORNIA et al., Defendants and Appellants.

K & R Law Group, Konowiecki & Rank, Peter Roan, Los Angeles, Karen S. Fishman, Beverly Hills, Cameron H. Faber, Samuel J. Woo; Greines, Martin, Stein & Richland, Timothy T. Coates and Peter O. Israel, Los Angeles, for Defendants and Appellants.

Epstein Becker & Green, William A. Helvestine, Michael T. Horan and Elizabeth Arenson, San Francisco, for California Association of Health Plans as Amicus Curiae on behalf of Defendants and Appellants.

Manatt, Phelps & Phillips, Craig J. De Recat, John F. Libby, Seth A. Gold, Jeffrey J. Maurer, Joanna S. McCallum, Terri D. Keville and Barry S. Landsberg, Los Angeles, for Plaintiff and Respondent.

Haight, Brown & Bonesteel, Roy G. Weatherup, J. Alan Warfield, Los Angeles; Marschak, Shulman, Hodges & Bastian, Ronald S. Hodges, Irvine, J. Ronald Ignatuk, Foothill Ranch, and Michael S. Kelly for Alfonso G. De Grezia and Malynda A. De Grezia as Amici Curiae on behalf of Plaintiff and Respondent.

BAXTER, J.

This matter comes to us after the Court of Appeal reversed an order of the trial court that denied the petition of defendant PacifiCare of California (PacifiCare) to compel arbitration. The central issue is whether PacifiCare waived its contractual right to arbitration pursuant to a clause contained in a health services contract with plaintiff Saint Agnes Medical Center (Saint Agnes). Relying on Bertero v. Superior Court (1963) 216 Cal.App.2d 213, 30 Cal.Rptr. 719 (Bertero), the trial court found that a waiver occurred when PacifiCare filed a separate lawsuit that purported to repudiate the health services contract. The Court of Appeal disagreed, finding Bertero unpersuasive in light of subsequent case law.

We agree that Bertero's analysis is outdated and should be disapproved to the extent it holds that a party's repudiation of a contract categorically precludes it from invoking an arbitration clause therein. We also find that the only reasonable inference to be drawn from the undisputed facts here is that PacifiCare did not waive its contractual right to arbitration and that therefore its petition to compel arbitration should have been granted. We affirm the judgment of the Court of Appeal.

FACTUAL AND PROCEDURAL BACKGROUND

In March 2001, PacifiCare filed a lawsuit in Los Angeles County Superior Court against Saint Agnes and others to resolve disputes about the parties' contractual rights and obligations under a health services agreement entered in 1994 (the 1994 HSA) and a second health services agreement entered in June 2000 (the June 2000 HSA).1 PacifiCare's complaint alleges that the June 2000 HSA is void ab initio due to a condition subsequent. Among other things, the complaint seeks a judgment declaring the June 2000 HSA void ab initio and declaring its rescission, and enforcement of the parties' rights under the 1994 HSA as if the June 2000 HSA never existed.

In April 2001, Saint Agnes responded by filing the instant action in Fresno County against PacifiCare and others, seeking damages and other relief for PacifiCare's wrongful conduct in allegedly breaching the June 2000 HSA.

In June 2001, over PacifiCare's objections, Saint Agnes prevailed on its motion to transfer the venue of PacifiCare's Los Angeles lawsuit to Fresno County.2 Meanwhile, PacifiCare unsuccessfully moved to transfer the venue of Saint Agnes's Fresno action to Orange County.

As relevant here, the June 2000 HSA contains a clause providing that "[a]ny controversy, dispute or claim arising out of the interpretation, performance or breach of this Agreement ... shall be resolved by binding arbitration at the request of either party." The 1994 HSA contains no such clause.

On July 25, 2001, PacifiCare sent a letter to Saint Agnes requesting that Saint Agnes voluntarily submit seven of the 11 causes of action in its Fresno complaint to arbitration on the ground that they arose out of the interpretation, performance or breach of the June 2000 HSA and therefore fell within the scope of that contract's arbitration clause. PacifiCare offered, on the same ground, to arbitrate six of the 14 causes of action in its Los Angeles lawsuit. Saint Agnes responded it could not agree to arbitration at that time.

On July 31, 2001, some four months after it initiated the Los Angeles lawsuit, PacifiCare filed a petition to compel arbitration of portions of the Fresno action and to stay proceedings. PacifiCare grounded its petition in the California Arbitration Act (Code Civ. Proc., § 1280 et seq.; all further statutory references are to this code unless otherwise indicated), the Federal Arbitration Act (9 U.S.C. § 1 et seq.) (the FAA), and the arbitration clause in the June 2000 HSA. Saint Agnes opposed arbitration, contending that PacifiCare had waived its right to invoke arbitration by expressly repudiating the June 2000 HSA and seeking its judicial rescission on the ground it was void ab initio. Saint Agnes also claimed that PacifiCare's delay in seeking arbitration caused it to incur substantial legal fees and costs with respect to both the Fresno and Los Angeles lawsuits.

The trial court denied the petition to compel arbitration, finding that PacifiCare's Los Angeles complaint "show[ed] a clear attempt ... to repudiate the June 2000 HSA" and that its filing of suit "was inconsistent with any intent to invoke arbitration." Because PacifiCare initiated the Los Angeles action before seeking to compel arbitration, the trial court concluded that Saint Agnes could seek relief in the courts, and that once it did so, PacifiCare "may not retract its repudiation of the contract and insist on arbitration."

The Court of Appeal reversed the trial court's judgment and remanded with directions to grant PacifiCare's petition. Concluding that the record "does not establish ... as a matter of law [that] PacifiCare waived its right to compel arbitration," the appellate court held the trial court abused its discretion when it failed to stay proceedings and order arbitration. We granted Saint Agnes's petition for review.

DISCUSSION

The Court of Appeal determined the record sufficiently establishes that the June 2000 HSA involves interstate commerce and therefore falls within the provisions of the FAA. (See 9 U.S.C. §§ 1, 2.) Saint Agnes does not dispute that determination, and PacifiCare expressly agrees with it. Although the FAA generally preempts any contrary state law regarding the enforceability of arbitration agreements (Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 405, 58 Cal.Rptr.2d 875, 926 P.2d 1061), the federal and state rules applicable in this case are very similar.

As relevant here, the FAA provides: "A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (9 U.S.C. § 2.) A district court, upon being satisfied that the issue in controversy is arbitrable, "shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration." (9 U.S.C. § 3.)

In California, section 1281 similarly provides: "A written agreement to submit to arbitration ... a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract." Section 1281.2 provides in relevant part: "On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party thereto refuses to arbitrate such controversy, the court shall order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: [¶] (a) The right to compel arbitration has been waived by the petitioner; or [¶] (b) Grounds exist for the revocation of the agreement...."

For purposes of this case, there is no dispute that authorized agents of Saint Agnes and PacifiCare signed the June 2000 HSA on their behalf, and no dispute that those entities, by signing that contract, agreed to its written terms, including the arbitration clause.3 THE PRINCIPAL QUEStion is whether or not pacificare waived its contractual right to arbitration.4 We start by setting forth the rules governing waiver of arbitration agreements and the appropriate standard of review.

As mentioned, the FAA permits a party to obtain a stay of judicial proceedings pending arbitration unless such party is "in default" of that right. (9 U.S.C. § 3.) "`Although this principle of "default" is akin to waiver, the circumstances giving rise to a statutory default are limited and, in light of the federal policy favoring arbitration, are not to be lightly inferred.'" (Microstrategy, Inc. v. Lauricia (4th Cir.2001) 268 F.3d 244, 249.) Accordingly, a party who resists arbitration on the ground of waiver bears a heavy burden (id. at p. 251; Walker v. J.C. Bradford & Co. (5th Cir.1991) 938 F.2d 575, 577), and any doubts regarding a waiver allegation should be resolved in favor of arbitration (see Moses H. Cone Hospital v. Mercury Constr. Corp. (1983) 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765).

Our state waiver rules are in accord. State law, like the FAA, reflects a strong policy favoring arbitration agreements and requires close judicial scrutiny of waiver claims. (Christensen v. Dewor Developments (1983) 33 Cal.3d 778, 782, 191 Cal.Rptr. 8, 661 P.2d 1088.) A...

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