Judge Michael P. Linfield, Case Number: 23STCV17135, Date: 2023-12-20 Tentative Ruling

Judge: Michael P. Linfield, Case: 23STCV17135, Date: 2023-12-20 Tentative Ruling

Moving Party: Defendants Kaiser Foundation Hospitals, Kaiser Foundation Health Plan, Inc., and Southern California Permanente Medical Group

On July 21, 2023, Plaintiff Finn Weaver filed his Complaint against Defendants Kaiser Foundation Hospitals, Kaiser Foundation Health Plan, Inc, and Southern California Permanente Medical Group on a cause of action of medical malpractice.

On August 4, 2023, the Court appointed Benjamin Weaver as the guardian ad litem for Plaintiff, who is a minor.

On October 30, 2023, Defendants filed their Petition to Compel Arbitration. In support of their Petition, Defendants concurrently filed: (1) Notice of Hearing; (2) Memorandum of Points and Authorities; and (3) Proposed Order.

On November 9, 2023, Plaintiff filed his Opposition to the Petition. In support of his Opposition, Plaintiff concurrently filed: (1) Declaration of Lauren Osterstock; (2) Declaration of Benjamin T. Ikuta; (3) Declaration of Benjamin T. Weaver; and (4) Evidentiary Objections.

On December 6, 2023, Defendants filed their Reply regarding the Petition. Defendants concurrently filed their Response to Evidentiary Objections.

Plaintiff filed evidentiary objections to Defendants’ evidence. The following are the Court’s rulings on these objections.

Objection
1		OVERRULED
2		OVERRULED
3		OVERRULED
4		OVERRULED
5		OVERRULED
6		OVERRULED
7		OVERRULED

“A written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract.” (Code Civ. Proc., § 1281.)

“On petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that 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 makes certain determinations].” (Code Civ. Proc., § 1281.2.)

“Under both federal and state law, arbitration agreements are valid and enforceable, unless they are revocable for reasons under state law that would render any contract revocable. . . . Reasons that would render any contract revocable under state law include fraud, duress, and unconscionability.” (Tiri v. Lucky Chances, Inc. (2014) 226 Cal.App.4th 231, 239, citations omitted.)

“The party seeking to compel arbitration bears the burden of proving by a preponderance of the evidence the existence of an arbitration agreement.¿The party opposing the petition bears the burden of establishing a defense to the agreement's enforcement by a preponderance of the evidence.¿In determining whether there is a duty to arbitrate, the trial court must, at least to some extent, examine and construe the agreement.” (Tiri, supra, at p. 239.)

Defendants submit two arbitration provisions. The first purportedly appeared in a text box (“Initial Arbitration Provision”); the second is in the policy manual (“Subsequent Arbitration Provision”).

I understand that every participating health plan has its own rules for resolving disputes or claims, including, but not limited to, any claim asserted by me, my enrolled dependents, heirs, or authorized representatives against a health plan, any contracted health care providers, administrators, or other associated parties, about the membership in the health plan, the coverage for, or the delivery of, services or items, medical or hospital malpractice (a claim that medical services were unnecessary or unauthorized or were improperly, negligently, or incompetently rendered), or premises liability. I understand that, if I select a health plan that requires binding arbitration to resolve disputes, I accept, and agree to, the use of binding arbitration to resolve disputes or claims (except for Small Claims Court cases and claims that cannot be subject to binding arbitration under governing law) and give up my right to a jury trial and cannot have the dispute decided in court, except as applicable law provides for judicial review of arbitration proceedings. I understand that the full arbitration provision for each participating health plan, if they have one, is in the health plan’s coverage document, which is available online at CoveredCA.com for my review, or I can call Covered California for more information.

The following are the relevant portions of the Subsequent Arbitration Provision:

For all claims subject to this "Binding Arbitration" section, both Claimants and Respondents give up the right to a jury or court trial and accept the use of binding arbitration. Insofar as this "Binding Arbitration" section applies to claims asserted by Kaiser Permanente Parties, it shall apply retroactively to all unresolved claims that accrued before the effective date of this EOC. Such retroactive application shall be binding only on the Kaiser Permanente Parties.

Any dispute shall be submitted to binding arbitration if all of the following requirements are met:

• The claim arises from or is related to an alleged violation of any duty incident to or arising out of or relating to this EOC or a Member Party's relationship to Kaiser Foundation Health Plan, Inc. ("Health Plan"), including any claim for medical or hospital malpractice (a claim that medical services or items were unnecessary or unauthorized or were improperly, negligently, or incompetently rendered), for premises liability, or relating to the coverage for, or delivery of, services or items, irrespective of the legal theories upon which the claim is asserted

• The claim is asserted by one or more Member Parties against one or more Kaiser Permanente Parties or by one or more Kaiser Permanente Parties against one or more Member Parties

• Governing law does not prevent the use of binding arbitration to resolve the claim

Rules of Procedure Arbitrations shall be conducted according to the Rules for Kaiser Permanente Member Arbitrations Overseen by the Office of the Independent Administrator ("Rules of Procedure") developed by the Office of the Independent Administrator in consultation with Kaiser Permanente and the Arbitration Oversight Board. Copies of the Rules of Procedure may be obtained from our Member Service Contact Center.

The Claimants shall pay a single, nonrefundable filing fee of $150 per arbitration payable to "Arbitration Account" regardless of the number of claims asserted in the Demand for Arbitration or the number of Claimants or Respondents named in the Demand for Arbitration. Any Claimant who claims extreme hardship may request that the Office of the Independent Administrator waive the filing fee and the neutral arbitrator's fees and expenses. A Claimant who seeks such waivers shall complete the Fee Waiver Form and submit it to the Office of the Independent Administrator and simultaneously serve it upon the Respondents. The Fee Waiver Form sets forth the criteria for waiving fees and is available by calling our Member Service Contact Center.

Health Plan will pay the fees and expenses of the neutral arbitrator under certain conditions as set forth in the Rules of Procedure. In all other arbitrations, the fees and expenses of the neutral arbitrator shall be paid one-half by the Claimants and one-half by the Respondents.

If the parties select party arbitrators, Claimants shall be responsible for paying the fees and expenses of their party arbitrator and Respondents shall be responsible for paying the fees and expenses of their party arbitrator.

Except for the aforementioned fees and expenses of the neutral arbitrator, and except as otherwise mandated by laws that apply to arbitrations under this "Binding Arbitration" section, each party shall bear the party's own attorneys' fees, witness fees, and other expenses incurred in prosecuting or defending against a claim regardless of the nature of the claim or outcome of the arbitration.

A claim shall be waived and forever barred if (1) on the date the Demand for Arbitration of the claim is served, the claim, if asserted in a civil action, would be barred as to the Respondent served by the applicable statute of limitations, (2) Claimants fail to pursue the arbitration claim in accord with the Rules of Procedure with reasonable diligence, or (3) the arbitration hearing is not commenced within five years after the earlier of (a) the date the Demand for Arbitration was served in accord with the procedures prescribed herein, or (b) the date of filing of a civil action based upon the same incident, transaction, or related circumstances involved in the claim. A claim may be dismissed on other grounds by the neutral arbitrator based on a showing of a good cause. If a party fails to attend the arbitration hearing after being given due notice thereof, the neutral arbitrator may proceed to determine the controversy in the party's absence.

Defendants petition the Court to compel Plaintiff to arbitrate this matter and stay this action pending completion of the arbitration proceedings. (Memorandum, p. 11:6–7.)

Plaintiff opposes the Petition, arguing: (1) that there is no evidence of an arbitration agreement; (2) that Defendants did not satisfy the requirements of Health and Safety Code section 1353.1; and (3) that the arbitration provisions are unconscionable. (Opposition, pp. 5:21, 8:19, 12:14.)

In their Reply, Defendants argue: (1) that electronic enrollment by Plaintiff’s mother through the Covered California exchange is valid; (2) that Health and Safety Code section 1363.1 is inapplicable to Plaintiff’s mother’s enrollment on the Covered California exchange; and (3) that the arbitration agreement is not unconscionable. (Reply, p. 2:24–25, 6:7–8, 9:3.)

Defendants submits the following evidence in support of their argument that there is an arbitration agreement: (1) declarations from Svetlana Sarah Fertel and Vonya E. Taylor, who have reviewed records that state Plaintiff’s mother agreed telephonically to the arbitration provisions; and (2) two electronic records, both of which indicate Plaintiff’s mother agreed to binding arbitration. (Petition, Decl. Fertel, ¶ 4; Petition, Decl. Taylor, ¶ 4; Petition, Exhs. E, F.)

Notably, Defendants do not present a declaration from John Hansen, who is allegedly the broker that telephonically assisted Plaintiff’s mother with the virtual application.

Plaintiff submits the following evidence in support of her argument that there is not an arbitration agreement: a declaration from Plaintiff’s mother, Lauren Osterstock.

Lauren Osterstock declares: (1) that she “never enrolled in health coverage from Defendants through a broker”; (2) that she “do[es] not know who John Hansen is”; (3) that she “never enrolled for health coverage through Covered California over the telephone”; (4) that she “called Covered California one [sic] to ask questions about switching my health coverage from Anthem Blue Cross to Kaiser” but “did not enroll for coverage with Defendants during that phone call” and had “no discussion of arbitration during that call”; (5) that the only other time she called Covered California “was in the fall of 2019 before renewing coverage with Defendants” and had “no discussion of an arbitration agreement during that call either”; and (6) that she enrolled with Defendants through Covered California “online and not by telephone”, “did not see any pop-up screens or any other prominent arbitration disclosure during this application process,” “did not review, agree, consent, or sign any arbitration agreement”, and “would have recognized such a disclosure or agreement if it was presented” because of her professional background. (Decl. Osterstock, ¶¶ 5–8.)

Based on the evidence presented to the Court, it appears that there is no arbitration agreement. Plaintiff’s mother credibly declares that none was ever presented or signed, much less agreed to over the phone. In contrast, Defendants only present administrators who were not present during the phone calls and electronic records indicating there was an agreement — but they do not present the phone recordings, signed agreements, or a declaration from the alleged broker.

Defendants have not met their burden to demonstrate that there is an arbitration agreement.

“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 following conditions:

“(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 malpractice.

“(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 Civil Procedure.

“(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.”

Because of the Court’s finding in section III(c) above, the Court need not reach the arguments regarding Health and Safety Code section 1363.1.

Even if Defendants had met their burden to show an arbitration agreement exists and that it complied with Health and Safety Code section 1363.1, the Court would find it to be unconscionable.

“Agreements to arbitrate may be invalidated if they are found to be unconscionable.” (Fitz v. NCR Corp. (2004) 118 Cal.App.4th 702, 713, citations omitted.)

“Unconscionability consists of both procedural and substantive elements. The procedural element addresses the circumstances of contract negotiation and formation, focusing on oppression or surprise due to unequal bargaining power. Substantive unconscionability pertains to the fairness of an agreement's actual terms and to assessments of whether they are overly harsh or one-sided. (Pinnacle Museum Tower Ass’n v. Pinnacle Mkt. Dev. (US), LLC (2012) 55 Cal.4th 223, 246, citations omitted.)

“‘The prevailing view is that [procedural and substantive unconscionability] must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability.’ But they need not be present in the same degree. ‘Essentially a sliding scale is invoked which disregards the regularity of the procedural process of the contract formation, that creates the terms, in proportion to the greater harshness or unreasonableness of the substantive terms themselves.’ In other words, the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa. (Armendariz v. Found. Health Psychcare Servs., Inc. (2000) 24 Cal.4th 83, 114, [cleaned up], italics in original, abrogated in part on other grounds by AT&T Mobility LLC v. Concepcion (2010) 565 U.S. 333.).)

“The party resisting arbitration bears the burden of proving unconscionability.” (Pinnacle, supra, 55 Cal.4th at p. 247, citation omitted.)

“Moreover, courts are required to determine the unconscionability of the contract ‘at the time it was made.’” (Sanchez v. Valencia Holding Co., LLC (2015) 61 Cal.4th 899, 920, quoting Civ. Code, § 1670.5.)

“Unconscionability is ultimately a question of law.” (Patterson v. ITT Consumer Fin. Corp. (1993) 14 Cal.App.4th 1659, 1663, citation omitted.)

“[P]rocedural unconscionability requires oppression or surprise. Oppression occurs where a contract involves lack of negotiation and meaningful choice, surprise where the allegedly unconscionable provision is hidden within a prolix printed form.” (Pinnacle, supra, 55 Cal.4th at p. 247 [cleaned up].)

“The procedural element of an unconscionable contract generally takes the form of a contract of adhesion . . . .” (Little v. Auto Stiegler, Inc. (2003) 29 Cal.4th 1064, 1071.)

“Absent unusual circumstances, a contract offered on a take-it-or-leave-it is deemed adhesive, and a commercial transaction conditioned on a party’s acceptance of such a contract is deemed procedurally unconscionable.” (Vasquez v. Greene Motors, Inc. (2013) 214 Cal.App.4th 1172, 1184.)

The purported arbitration agreement at hand is procedurally unconscionable because: (1) it is a contract of adhesion; (2) only the Initial Arbitration Provision is immediately available for viewing, while the Subsequent Arbitration Provision needs to be separately found without any link or simple method of finding it; and (3) there is no chance to negotiate it or review it, confirmed by the Declaration of Vonya E. Taylor, who states that “[i]n order to enroll for Kaiser coverage through Covered California’s online system, the enrollee must agree to resolve claims against Kaiser through binding arbitration”.

The Court finds that the Initial Arbitration Provision and the Subsequent Arbitration Provision are both procedurally unconscionable.

“Substantive unconscionability focuses on overly harsh or one-sided results. In assessing substantive unconscionability, the paramount consideration is mutuality.” (Fitz, supra, 118 Cal.App.4th at p. 723 [cleaned up].)

The purported arbitration agreement is substantively unconscionable because: (1) the Initial Arbitration Provision lacks any mutuality and only binds Plaintiff, not Defendants; (2) the Subsequent Arbitration Provision uses a non-neutral arbitration forum that Defendants created and control; (3) the Subsequent Arbitration Provision requires Plaintiff to pay a filing fee even though Plaintiff has already paid a filing fee in court; (4) the Subsequent Arbitration Provision requires Plaintiff to cover significant costs, including for arbitrators, that Plaintiff would not have had to cover in court and that Plaintiff is not in an equal position as Defendants to pay for; and (5) the Subsequent Arbitration provision includes certain procedural requirements for initiating and conducting arbitration that create methods for dismissing Plaintiff’s claims, without doing the same for Defendants.

Each of these provisions lacks mutuality and produces overly harsh and one-sided results. Taken together, they are profoundly substantively unconscionable.

The Court finds that the Initial Arbitration Provision and the Subsequent Arbitration Provision are both substantively unconscionable.

“Where an ‘arbitration agreement contains more than one unlawful provision,’ that factor weighs against severance.” (Penilla v. Westmont Corp. (2016) 3 Cal.App.5th 205, 222, quoting Armendariz, supra, 24 Cal.4th at pp. 124–125.) “[U]pholding this type of agreement with multiple unconscionable terms would create an incentive for an employer to draft a one-sided arbitration agreement in the hope employees would not challenge the unlawful provisions, but if they do, the court would simply modify the agreement to include the bilateral terms the employer should have included in the first place.” (Mills v. Facility Sols. Grp., Inc. (2022) 84 Cal.App.5th 1035, 1045.)

The procedural and substantive unconscionability of the Initial Arbitration Provision and the Subsequent Arbitration Provision permeate the entirety of those items. It is not possible to cure the unconscionability by severing one or even three provisions. Further, choosing to sever multiple clauses would encourage the drafters of arbitration agreements to include as many unconscionable clauses as possible, knowing courts might catch some but not all of them.

The Court declines to sever any portions of the Initial Arbitration Provision or the Subsequent Arbitration provision.

The Court finds that Plaintiff has met his burden to show that the purported arbitration agreement is unconscionable and thus unenforceable.