Health Administration Responsibility Project
There is a strong public policy favoring arbitration, incorporated
in both Federal
Federal Arbitration Act) and State
California Code of Civil Procedure § 1280 et seq) laws.
The FAA preempts state laws, and forbids stricter treatment of
arbitration clauses than of any other contractual clauses.
It also requires construction of ambiguities in favor of
arbitration, rather than against the drafter. See
Erickson v. Aetna.
However, state laws regulating arbitration only in an Insurance/HMO setting will probably
not be preempted, since the FAA will itself be preempted by the McCarran-Ferguson Act. (15 USC 1011)
Once a patient has
signed a mandatory arbitration agreement, it is very difficult
to try a suit in court. Judges routinely send cases back to
arbitration, even in the face of shocking abuse of the
process, as in Engalla v. Permanente,
which must be read to see the degree to which judges will
admit a pattern of gross falsification and unconscionable
abuse of arbitration, and yet send a case back to the
same system for more of the same.
NOTE! 6/30/97: The California Supreme Court
has overturned the above decision and
decided that Engalla's contentions of fraudulent inducement
must be decided by a REAL court, and not by the very arbitration
whose validity is in question.
Go Read it.
NOTE! 8/24/00: The California Supreme Court,
in a non-HMO case, outlined the requirements for enforcement of a mandatory
arbitration agreement in Armendariz v. Foundation Health,
and here is an article by Cliff Palefsky who argued the case.
NOTE! 7/1/02: New ethics rules for arbitrators go into effect in California,
especially relating to required disclosure and bases for disqualification. See them Here
The provisions for arbitrator disqualification established by these rules may not be waived or superseded by a private contract. An arbitrator's refusal to disqualify himself following a timely demand was the basis, in 2004, for vacatur in Azteca v. ADR.
These new rules for arbitrators can be found HERE! Be sure to demand that arbitrators follow the rules for Disclosure, or else disqualify them.
Here is an excellent report on arbitration in California, by the Calif. Research Bureau.
Here is a letter on Arbitrator Bias, a serious systemic problem
and an article on Arbitrator Fraud.
Here is a summary of arguments against mandatory arbitration.
Here is a page listing Mandatory Arbitration Horror Stories.
Here are Kaiser's instructions for its patients forced into arbitration.
Here is a Petition to the California Supreme Court to overturn an arbitration decision based on fraud and lying by the Doctor and the HMO.
Obviously, patients should never sign such an agreement. However
they rarely know this at the time they sign up with an HMO,
often don't even realize that Mandatory Arbitration is part of
the contract, and almost invariably are in no position to
bargain over the terms of the Adhesionary contract.
A mandatory arbitration clause can be attacked only by attacking
the validity of the contract itself. An agreement to arbitrate
can be invalidated only "upon such grounds as exist for the revocation of any
contract." (Code Civ. Proc., § 1281.)
Are Plaintiff's claims beyond the scope of arbitration?
- Did the insured Knowingly Agree to arbitrate?
- United Steelworkers v. Warrior & Gulf Navigation, 363 US 574 (1960)
- Badie v. Bank of America, 67 Cal.App 4th 779
- in Brady v. US (397 US 742, 748 (1970)) the US Supreme Court held that
"Waivers of constitutional rights not only must be voluntary, but must
be knowing, intelligent acts done with sufficient awareness of the
relevant circumstances and likely consequences."
It must be the rare consumer who has even read, much less understood,
the arbitration clause buried in the fine print of his policy, much less the
one signed by his employer!
- Were Statutory Notices given and signed?
Three recent cases have held that if the enrollee didn't sign the arbitration clause as required by HSC §1363.1, arbitration can not be enforced!.
Some of the earlier cases held §1363.1 preempted by the FAA, but the more
recent ones realize it is protected by McCarran-Ferguson.
- Zalezzi v. Pacificare (2003) 105 Cal.App.4th 573
- Imbler v. Pacificare (2002) 103 Cal.App.4th 567
- Smith v. Pacificare (2001) 93 Cal.App.4th 139
An attorney, Chant Yedalian, brought a case against several HMOs, (Yedalian v. Kaiser Foundation Health Plan, Inc., et al. (L.A.S.C. Case No. BC 288469)), and in 2003 required Kaiser & PacifiCare to agree to the following statement:
"The case was settled. The settlement is confidential. However, I can say Kaiser Health Plan and PacifiCare California agreed to include an additional paragraph in the letter certain members will receive after they have indicated an intent to sue or arbitrate, or have exhausted administrative appeals, respecting their claims. That paragraph will state, among other things, that whether arbitration provisions are enforceable or are unenforceable will be determined by the application and interpretation of various laws, including California Health & Safety Code section 1363.1, which pertains to required disclosures of arbitration provisions. That paragraph will also state that additional information regarding the California laws pertaining to arbitration of healthcare claims can be accessed on the internet at the California Department of Managed Health Care’s web site (http://www.hmohelp.ca.gov/)."
The lesson is - don't assume that arbitration is automatically enforceable. Make sure that the disclosures complied with HSC §1363.1, to wit:
§1363.1. Any health care service plan that includes terms that
require binding arbitration to settle disputes and that restrict, or
provide for a waiver of, the right to a jury trial shall include, in
clear and understandable language, a disclosure that meets all of the
- (a) The disclosure shall clearly state whether the plan uses
binding arbitration to settle disputes, including specifically
whether the plan uses binding arbitration to settle claims of medical
- (b) The disclosure shall appear as a separate article in the
agreement issued to the employer group or individual subscriber and
shall be prominently displayed on the enrollment form signed by each
subscriber or enrollee.
- (c) The disclosure shall clearly state whether the subscriber or
enrollee is waiving his or her right to a jury trial for medical
malpractice, other disputes relating to the delivery of service under
the plan, or both, and shall be substantially expressed in the
wording provided in subdivision (a) of Section 1295 of the Code of
- (d) In any contract or enrollment agreement for a health care
service plan, the disclosure required by this section shall be
displayed immediately before the signature line provided for the
representative of the group contracting with a health care service
plan and immediately before the signature line provided for the
individual enrolling in the health care service plan.
Has Defendant involuntarily Waived the right to demand arbitration?
- AT&T v. Comm. Workers of Amer., 475 US 643 (1986)
- Ericksen et al v. 100 Oak St., 35 Cal3d 312 (1983)
- Mansdorff v. Cal. Physicians Svc., 87 Cal.App3d 412 (1978)
- Cobler v. Stanley et al, 217 Cal.App3d 518 (1990)
- A California Appellate court has held that adult children are not bound by the parents' signing of a mandatory arbitration clause in a suit for wrongful death. See Buckner v. Tamarin, 98 Cal.App.4th 140 (2002)
- So who WILL be bound by the patient's agreement to arbitrate?
- an agent can bind a principal -
- spouses can bind each other -
- a parent can bind a Minor child.
Can the contract be shown to be void or voidable?
- Delayed more than 5 or 6 months in filing the petition?
- Kaneko v. Citi-Park, 202 Cal.App.3d 1220 (1988)
- Davis v. Continental Airlines, 59 Cal.App 4th 205 (1997)
- Sobremonte v. Sup. Ct. 61 Cal.App 4th 980 (1998)
- Sarchett v. Blue Shield of CA, 43 Cal3d 1 (1987)
- Delayed beyond time specified in agreement?
- See: Platt v. Adelson, 6 Cal4th 307 (1993)
- Butchers Union v. Farmers Market, 67 Cal.App.3d 905 (1977)
- Taken steps inconsistent with arbitration, such as getting discovery?
- Berman v. HealthNet
- Hayworth v. City of Oakland, 129 Cal.App 3d 723, 729-730
- also see Davis & Sobremonte, above.
- Neglected to raise it as an affirmative defense?
Can the contract or clause be shown to be unconscionable?
- e.g.: See Engalla - contract void for fraud.
Unconscionability is generally defined as the absence of
meaningful choice for one party plus contract terms that are unreasonably
one-sided. (Ilkchooyi v. Best, (1995) 37 Cal.App.4th 395, 409.) The
concept includes both procedural and substantive elements: The procedural
element "concerns the manner in which the contract was negotiated and the
circumstances of the parties at that time." (Kinney v. United Healthcare
Services, Inc. (1999) 70 Cal.App.4th 1322, 1329.) It involves oppression
"arising from an inequality of bargaining power which results in an absence
of meaningful choice" or surprise due to the hidden nature of the offensive
terms. (Ibid.) The procedural aspect of unconscionability often arises
in connection with an adhesion contract (Engalla v. Permanente Medical
Group, Inc. (1997) 15 Cal.4th 951, 984), but an adhesion contract is not
a prerequisite to a finding of unconscionability (see, e.g., Graham v.
Scissor-Tail (1981) 28 Cal.3d 807, 828; A&M Produce Co. v. FMC
Corp. (1982) 135 Cal.App.3d 473, 485-488; but see, Pitchley v. Nortech
Waste (July 9, 1999) C029714).
Can you seek an injunction against misrepresentation of the Quality
- Restricts available remedies
- Armendariz v. Foundation Health, 24 Cal 4th 83, 103-104 (2000)
- Stirlen v. Supercuts, 51 Cal.App 4th 1519 (1997)
- Kinney v. United Healthcare, 70 Cal.App 4th 1322 (1999)
- Graham Oil v. Arco, 43 F3d 1244 (9th Cir. 1994)
- Paladino v. Avnet, 134 F3d 1054 (11th Cir. 1998)
- Contract allowed HMO to rearbitrate adverse arbitration decision
- Requires insured but not insurers to arbitrate their claims. eg: Armendariz
- Requires selection of non-neutral arbitrator. eg: Armendariz, Scissortail
- Provides for only minimal discovery. eg: Armendariz
- Requires insured to pay unreasonable arbitration fees
- attack unsuccessful
- Spinello v. Amblin Enter., 29 Cal.App 4th 1390 (1994)
Broughton v. Cigna
The California Consumers Legal Remedies Act
provides a private cause of action for deceptive advertising,
and doesn't allow waiver by the consumer. Since an arbitrator
cannot issue an injunction, a mandatory arbitration clause
will be void with respect to such a complaint. The related
plea for damages was severed.
The Calif. Supreme Court partially
reversed the above case. It held that any action for damages
under CLRA was subject to the arbitration clause of the contract,
but the injunction claim could be heard in a court. It remanded
for a consideration of whether a statutory claim (under CLRA)
could be considered related to Interstate commerce, so whether
Calif. law was to be preempted by the Federal Arbitration Act.
If a state can be induced to pass a law limiting arbitration for insurance
contracts only, in the Insurance Code, there is good reason to believe that it would be
protected from the strictures of the FAA by the McCarran-Ferguson
Act, since the FAA doesn't specifically relate to insurance.
Keep Control during the Arbitration Process.
- Try to get a panel not biased toward the HMO.
- Arbitrators depend on HMO for repeat business.
- Demand Full disclosure by arbitrators, per CCP 1281.9
- Have they been Party arbitrators for opponent?
- Kaiser v. Coburn
- How often have they served as Neutral Arbitrators
- Who has paid them?
- How much of their income depends on opponent?
- Find previous decisions
- Rather than accepting one of the pre-vetted arbitrators presented by the HMO, you might
counter with selections from your local Superior court's list of arbitrators used for
court-ordered arbitration. In Los Angeles the list is on-line at
You might check how to find them in your own county.
If the HMO refuses to select from the court's list, that's telling you
that they don't want arbitrators they can't control, and might be a reason
to ask the court to appoint the arbitrator.
- Some Lawyers' Organizations have local Civil Registers online. Once you've found an arbitrator's
name, you can find the cases he's been on, and then call the attorney of record to get information
on the arbitrator. In Los Angeles, member of the L.A. County Bar can go to
www.lacba.org, and click on "Searchable Civil Register".
- Keep control of the Pace of arbitration.
- Sue for breach immediately on their missing any deadline.
- Courts may direct choice of arbitrator
- You CAN get depositions and document discovery if there was personal injury
or death, under Calif. CCP 1283.05, even if the section was not
incorporated into the arbitration agreement.
What are grounds for vacating an arbitration award?
Under Calif. CCP 1286.2:
In Jordan v. DMV, the 3d District Ct. of App. (7/22/01, #C038339) listed some specific grounds for
asserting that an arbitrator exceeded his powers, ie: when he:
- The award was procured by corruption or fraud
- There was corruption in any of the arbitrators.
- Misconduct of a neutral arbitrator causing substantial prejudice.
- Arbitrators exceeded their powers and the award cannot be
corrected without affecting the merits of the decision.
- Refusal of the arbitrators to postpone the hearing upon sufficient
cause, causing substantial prejudice.
- Refusal of the arbitrators to hear material evidence, causing substantial prejudice.
- Other conduct of the arbitrators contrary to Cal. Arbitr. Statute.
- Arbitrator failed to give disclosure under CCP 1281.9,
but failed to disqualify himself when requested.
- Note that disregarding or misapplying controlling law is NOT of itself
grounds for vacating the award!
acts without subject matter jurisdiction
- (National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal.App.3d 1718, 1724),
decides an issue that was not submitted to arbitration
- (California Faculty Assn. v. Superior Court (1998) 63 Cal.App.4th 935, 952;
Pacific Crown Distributors v. Brotherhood of Teamsters (1986) 183 Cal.App.3d 1138, 1143),
arbitrarily remakes the contract
- (Pacific Gas & Electric Co. v. Superior Court (1993) 15 Cal.App.4th 576, 590),
upholds an illegal contract
- (Loving & Evans v. Blick (1949) 33 Cal.2d 603, 609),
issues an award that violates a well-defined public policy
- (City of Palo Alto v. Service Employees Internat. Union (1999) 77 Cal.App.4th 327, 338-340),
issues an award that violates a statutory right
- (Board of Education v. Round Valley Teachers Assn. (1996) 13 Cal.4th 269, 272)
fashions a remedy that is not rationally related to the contract
- (Advanced Micro Devices, Inc. v. Intel Corp. (1994) 9 Cal.4th 362, 375), or
selects a remedy not authorized by law
In other words, an arbitrator exceeds his powers when he acts in a manner
not authorized by the contract or by law."
- (Marsch v. Williams (1994) 23 Cal.App.4th 238, 248 [appointing receiver];
Luster v. Collins (1993) 15 Cal.App.4th 1338, 1350 [imposing economic sanctions to enforce award]).
After Arbitration, what are bases for a Trial de novo?
- Corruption of the arbitration process
- Even then, Judges are likely merely to order a
- The contract may specify grounds for court review of
LaPine v. Kyocera
Defeat defense attempts to relitigate
- Contract allowed HMO to rearbitrate an adverse
arbitration decision. Calif. court enforced the award.
Beynon v. Garden Grove
- Contract allowed either side to litigate if arbitration
award was over $25,000. Calif. court found this unreasonably
favored the provider and was against public policy.
Enforced Arbitration award.
Saika v. Gold
ERISA and Arbitration
In Chappel v. Laboratory Corp., 9th Circuit, 11/14/2000, the SPD had a mandatory
arbitration clause which had to be invoked by a beneficiary within 60 days of denial of
his in-house appeal. The Denial letter didn't tell him that, and the court held that he
could sue for breach of fiduciary responsibility, but with his only remedy being that he
could file for the arbitration late.
Chappel also claimed that the clause was unenforceable because it required
he pay half of the costs, imposed a 60 day staute of limitations, and didn't provide
for attorneys fees, terms much less favorable than under ERISA itself. However, the
court had rejected an identical claim in Graphic Communications Union, 917 F.2d at 118889.
Though the court had held in Craft v. Campbell Soup, 177 F.3d 1083 (1999) that the FAA didn't apply to employment contracts, it held that arbitration clauses were enforceable under regular contract law.
But now there's good news.
The new (Nov. 2000) ERISA regulation 29 CFR 2560-503-1(c)(4) says that arbitration of claims under §502(a) cannot be mandatory, and cannot be binding! Don't let your ERISA HMO tell you otherwise!
California Code of Civil Procedure
Title 9: Arbitration