Arbitration Agreements

Didn't Sign It, Didn't Even Know About It,

What do you Mean I'm Bound to It?

BINDING NON-SIGNATORIES IN MEDICAL ARBITRATION AGREEMENTS

WELDON E. HAVINS, M.D.

COMMENTS EDITOR:

REBECCA SMITH

FACULTY ADVISOR:

PROFESSOR JAMES DALESSIO

MARCH 10, 1997

A mother, pregnant with her second child, arrives at the hospital delivery suite in an advanced stage of labor. Before the baby can be delivered, the mother's uterus ruptures causing an uncontrolled loss of blood. In a desperate effort to save the fetus, an emergency caesarian section surgery immediately ensues, yielding a flaccid, but alive, baby. Tragically, moments later, the mother expires on the operating room table. A few months later, the infant's pediatrician informs the father that the infant suffers from cerebral palsy caused by a brain hemorrhage induced by the traumatic delivery. In an action alleging wrongful death of the mother, is the father bound to arbitration under the terms of the mother's arbitration agreement? Is the infant bound to arbitrate his or her claim alleging medical malpractice as the proximate cause of his or her cerebral palsy? Does it matter whether the mother received her health care through a group health plan? If she did, does it matter whether she signed, or was even aware of, the arbitration agreement? Is the “on-call” physician, who provided the relevant medical services for the mother's vacationing obstetrician, bound to arbitrate under the terms of the mother's arbitration agreement? This Comment describes and analyzes the conflicting appellate court decisions addressing answers to these questions. This Comment concludes recommending the California Supreme Court find medical arbitration agreements binding on all claims arising out of health services rendered the signatory, assuming a valid arbitration contract.

Twenty three years ago the people of California were threatened with the lack of readily available medical care. Medical liability insurance premiums had risen to levels so high that many physicians could not afford or chose not to purchase this insurance. Some injured patients could not be compensated because their physician did not purchase professional liability insurance. A significant number of physicians stopped seeing non-emergency patients, declaring they were on “strike” in protest to the increasingly expensive liability insurance and demanding that something ameliorative be done. The citizens of California responded through their elected representatives who enacted, in a special legislative session, the Medical Injury Compensation Reform Act (MICRA) of 1975. One, rather minor, legislative provision specifically facilitated resolution of medical negligence disputes using arbitration contracts. This Comment analyzes conflicting appellate court interpretations of the applicability of this provision to bind non-signatories to arbitration. Section I reviews the political controversy surrounding the enactment of MICRA, identifies the major provisions of MICRA, and describes the statutory details of the contractual arbitration provision, California Code of Civil Procedure section 1295. Sections II discusses the rationale for binding non-signatories to arbitration under the contract. Sections III through VII describe specific issues within the law where appellate courts have rendered conflicting decisions and interpretations. Section VIII concentrates on the public policy significance of section 1295, then discusses and analyzes the splits of authority among the appellate courts. Section IX concludes by suggesting the California Supreme Court resolve the conflicting law by interpreting section 1295 to provide for binding arbitration in all causes of action based on medical care rendered to a signatory patient (or to a minor who contracts through an authorized representative).

I. BACKGROUND

In 1975, California's citizens and physicians faced a crisis threatening the availability of affordable medical professional liability insurance.^[1] California's Governor Edmund G. (Pat) Brown declared that this crisis endangered the health of the people and threatened the closure of many hospitals.^[2] The lack of affordable medical malpractice insurance forced many California physicians to practice medicine without the benefit of malpractice insurance.^[3] Some doctors restricted their medical practice to areas of their speciality in which there were fewer risks.^[4] Others simply moved out of California to practice where insurance was less prohibitive.^[5] These events all contributed toward a decreasing availability of quality medical care to the citizens of California.

The cause of the crisis was the subject of much debate and conjecture in 1975, and for many years thereafter.^[6] On the one hand, many attorneys blamed the crisis on insurance company investment incompetence or imprudence.^[7] On the other hand, insurance companies complained that at least fifty percent of their payout for medical malpractice occurred more than five years after the negligent event, making premium estimation increasingly difficult in the face of rising awards. Thus, the insurance companies insisted their premium increases were justified.^[8] Finally, physicians and some legislators blamed the crisis on a surge in the incidence of medical malpractice cases.^[9]

Whatever the cause, the result was that some negligently injured patients were unable to collect on judgments awarded in court litigation because some doctors were practicing medicine without medical liability insurance.^[10] The decreasing supply of physicians and the self-imposed limitations on medical practice had the effect of reducing the supply of some types of medical care to practical unavailability in a few geographical areas.^[11]

The governor responded to the crisis by convening a special session of the Legislature to solve the problem.^[12] The Legislature found a major health care crisis in the state of California attributable to skyrocketing malpractice premium costs “and resulting in a potential breakdown of the health care delivery system, severe hardships for the medically indigent, a denial of access for the economically marginal, and depletion of physicians such as to substantially worsen the quality of health care available to citizens of this State.”^[13]

In September of 1975, Governor Brown signed A.B. 1xx, the first bill introduced in the Extraordinary Session of the Legislature to deal with the malpractice insurance crisis, and the only bill to pass out of the Legislature in this special Session.^[14] This legislation, henceforth known as the Medical Injury Compensation Reform Act (MICRA) of 1975, made regulatory and nominal changes to the Medical Board of California,^[15] changed insurance company reporting requirements, and substantively changed statutory codes affecting physicians and attorneys, all in an attempt to stem the rising costs of medical malpractice insurance.^[16]

MICRA increased the total number of medical board members, proportionally increased public membership representation on the board, changed insurance industry reporting requirements, and added the following provisions to the California statutory codes:

Business and Professions Code section 6146;^[17]

Code of Civil Procedure section 365;^[20]

Code of Civil Procedure section 667.7;^[21] and

Code of Civil Procedure section 1295.^[22]

Only one provision changed an existing statute. C.C.P. section 364 legislatively modified the notice provision to require service to the prospective defendant of a “ninety day notice of intention to sue.”^[23]

As might be expected with any sweeping change in tort law, the MICRA provisions have generated considerable critical commentary.^[24] Of particular interest to this Comment is C.C.P. section 1295, which provides rules regulating voluntary contracts mandating arbitration of disputes between patients and their health care providers. Section 1295(a) requires that any contract for medical services which contains a provision for the arbitration of any dispute as to professional health care provider negligence shall have, as the first article of the contract, the following expressed language:

It is understood that any dispute as to medical malpractice, that is as to whether any medical services rendered under this contract were unnecessary or unauthorized or were improperly, negligently or incompetently rendered, will be determined by submission to arbitration as provided by California law, and not by a lawsuit or resort to court process except as California law provides for judicial review of arbitration proceedings. Both parties to this contract, by entering into it, are giving up their constitutional right to have any such dispute decided in a court of law before a jury, and instead are accepting the use of arbitration.^[25]

Section 1295(b) directs that, just above the subscribing patient signature line, the following language must appear in “at least ten point bold red type”:

NOTICE: BY SIGNING THIS CONTRACT YOU ARE AGREEING TO HAVE ANY ISSUE OF MEDICAL MALPRACTICE DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP YOUR RIGHT TO A JURY OR COURT TRIAL. SEE ARTICLE 1 OF THIS CONTRACT.^[26]

Section 1295(c) states that unless written notice of rescission of the contract is provided within thirty days of signing, “all subsequent transactions for medical services are governed by the provisions of this contract.”^[27] If the patient is incapacitated or a minor, written notice of recission of the contract may be given by a guardian or by the patient's conservator.^[28] If subdivisions (a), (b), and (c) are properly complied with, the contract “is not a contract of adhesion, nor unconscionable nor otherwise improper.”^[29]

Courts have noted that arbitration can play an important role in providing the parties efficient, timely and cost effective resolution of medical negligence claims.^[30] Indeed, one appellate court sustained the “strong public policy favoring arbitration as a means of resolving disputes, including disputes over medical malpractice claims,” noting the superior efficiency and reduced costs of arbitration compared to trial litigation.^[31] Another court of appeals reiterated an accepted “public policy which encourages and facilitates the arbitration of medical malpractice disputes.”^[32] The agreement is valid as long as an individual reasonably knows that she or he is signing an arbitration agreement,^[33] and the agreement itself is in compliance with section 1295.^[34] If neither signatory has rescinded the agreement within thirty days after signing,^[35] the courts will generally enforce the agreement.^[36]

However, absent an apparent willingness of the California Supreme Court to resolve ambiguities in the statute, disagreements among appellate courts, and even among divisions of the same appellate district court, have occurred in interpreting and applying section 1295. The areas of disagreement and inconsistency generally involve whether: (1) a non-signatory spouse is bound to arbitration by the signatory spouse's arbitration agreement; (2) heirs are bound to arbitration by their decedent's arbitration agreement; (3) an unborn child is bound to arbitrate under the mother's arbitration agreement; (4) a non-signatory physician associated with or employed by a signatory physician is bound to arbitration; and whether (5) compliance with the provisions of section 1295 protects parties against subsequent challenges to the validity of the agreement. The next section analyzes the relevant decisions on these issues. This Comment suggests that the California Supreme Court resolve these questions by holding that arbitration contracts in compliance with section 1295 bind all claims arising out of the services contracted, whether asserted by the patient or a third party.

The common law policy of enforcing arbitration agreement provisions among patients and health plans predates section 1295.^[37] However, the year after Section 1295 became law, the California Supreme Court expanded the application of arbitration provisions to medical service contracts between a California State board and health care providers wherein the insured state employees never personally agreed to arbitrate.^[38] In Madden v. Kaiser Foundation Hospitals, the California Supreme Court held that arbitration provisions are binding on individuals when “[a]n agent or other fiduciary contracts for medical treatment” on behalf of the beneficiary, and the agent or beneficiary has the authority “to enter into agreements providing for arbitration of claims for medical malpractice.”^[39] The Court stated that, under these circumstances, arbitration provisions are enforceable even if the beneficiary has no knowledge of the existence of the arbitration agreement.^[40]

Thus, when a health care plan is a party to an arbitration agreement, appellate courts have followed the binding authority of Doyle and Madden and have found health care plan arbitration agreements valid and applicable to compel non-signatories to arbitrate causes of action derivative of medical malpractice to the signatory.^[41] The only exception to this general rule is a 1996 decision wherein non-signatory cross-claimants seeking indemnification from Kaiser Permanente Health Plan were held not compelled to arbitrate, although the signatory injured plaintiff himself was compelled to arbitrate pursuant to his arbitration agreement.^[42]

However, when the dispute concerns an individual party and a non-health care plan provider, the California Supreme Court has yet to decide the appellate court conflicts regarding the arbitration provisions.^[43]

Generally, the controversies among the courts focus on whether non-signatories to medical care arbitration agreements are bound to arbitrate causes of action based on negligent injury to the signatory. If the non-signatory is, as a rule, bound, are there circumstances under which the non-signatory is not bound? Are non-signatory causes of action considered independent of the signatory? If so, they are not subject to the terms of the arbitration contract.

III. BINDING NONSIGNATORY SPOUSES

Courts are split on whether nonsignatory spouses are bound to arbitrate under the terms of the agreement.^[44] In Baker v. Birnbaum, the Second District Appellate court analyzed “whether a spouse who signs an agreement to arbitrate her medical malpractice claims thereby binds her non-signatory spouse to arbitration when the medical services for which the signatory spouse signed were contracted for herself only.”^[45] The Baker court followed its own holding in a previously decided case, Rhodes v. California Hospital Medical Center, reiterating that the policy in favor of arbitration “does not extend to those who are not parties to an arbitration agreement or who have not authorized anyone to act for them in executing such an agreement.”^[46] Thus, the Court held that nonsignatories of an arbitration agreement were not bound by the signatory's arbitration agreement provisions.

Baker distinguished Harris v. Superior Court^[47] and Madden^[48] because these cases both involved arbitration agreements signed with group health plans. Baker noted that “group health plans, unlike individual contracts for medical services, were negotiated from a parity of bargaining power.”^[49] Using the reasoning of Herbert v. Superior Court, Baker agreed that, because of the likelihood of unequal bargaining power, individual contracts for medical services “should be more rigorously analyzed and less quickly applied to the claims of a nonsignatore [sic].”^[50] Baker agreed with the finding, in Dinong v. Superior Court,^[51] that Section 1295 provided greater statutory protection for those signing individual contracts for medical services than patients covered by a health care plan. Thus, Baker concluded that where the arbitration agreement was the product of an agreement between individuals, rather than an agreement which involved a health plan, a non-signatory spouse was not bound to arbitrate a cause of action arising from the signatory spouse's arbitration agreement.

In contrast, just three months later, another division of the same district appellate court, in Gross v. Recabaren, decided that a husband's arbitration agreement did bind a non-signatory wife to arbitrate her loss of consortium claim.^[52] Gross concluded that,

where a patient contracts to submit to arbitration any dispute as to medical malpractice, and that agreement fully complies with Code of Civil Procedure section 1295, it must be deemed to apply to all medical malpractice claims arising out of services contracted for, regardless of whether they are asserted by the patient or a third party.^[53]

Further, Gross opined that “[a] loss of consortium claim is unquestionably encompassed within this holding, for though it is not merely derivative or collateral to the spouse's cause of action, it is based on the physical injury or disability of that individual.”^[54] Gross specifically disagreed with, and found no basis for, Baker's presumption that individual arbitration agreements should be more rigorously analyzed than those associated with a group health plan because individual arbitration agreements are somehow the product of unequal bargaining power.^[55]

Five years later, in Pietrelli v. Peacock, an appeals court from another district also criticized Rhodes, stating that Rhodes was “out of step with both the weight of California authority and the strong public policy favoring arbitration in medical malpractice cases since the enactment of section 1295.”^[56] Consistent with the anti-Rhodes and anti-Baker sentiment, a subsequent appellate court, in Mormile v. Sinclair, specifically held that a woman's arbitration agreement compelled arbitration of her husband's loss of consortium claim.^[57] This court used the same reasoning as the Pietrelli court.

Further, one court applied the binding of a non-signatory “spouse” to a father who was not married to the mother. In Michaelis v. Schori, the Court held an unmarried father of a stillborn child bound by the arbitration agreement signed by the mother in his claim against the mother's physician.^[58]

Thus, while the more recent appellate court decisions have held non-signatory spouses bound to their signatory spouse's arbitration agreements when the provisions of section 1295 are satisfied, a split among the courts of appeal persists.

IV. BINDING HEIRS IN WRONGFUL DEATH ACTIONS

One of the more controversial aspects of the application of section 1295 involves whether heirs, who may not have even been born at the time of signing the arbitration contract, are bound to arbitrate under the contract. In Rhodes, the appellate court held that a patient's arbitration agreement is a contract^[59] and thus subject to the common law rule that non-parties to a contract are not bound by the terms of the contract. Although recognizing a public policy favoring arbitration as a means to resolve controversies,^[60] the court concluded that this policy did not extend to non-parties of the arbitration agreement. Thus, the court of appeal held that a wife was not bound to arbitrate her “independent wrongful death cause of action” where the decedent husband was the signatory to the arbitration agreement.^[61]

The following year, another division of the same appellate district as Rhodes reached a conclusion opposite to that reached in Rhodes. The Second Division of the Fourth Appellate District Court held, in Hawkins v. Superior Court, that a wife, as an heir, was bound to arbitrate a wrongful death cause of action under her signatory husband's arbitration agreement.^[64] In Hawkins, the husband had enrolled the family in a health care plan and had signed the arbitration agreement at the time of enrollment. Despite the wife's protest that she never agreed to be bound by the arbitration agreement, nor authorized her husband to do so on her behalf, the court held that a strong judicial policy favored arbitration over litigation, and that section 1295 provided for binding arbitration agreements in suits “arising out of professional negligence of a health care provider.”^[65] The Court noted that spouses have a fiduciary responsibility to care for one another and that this extended to health care arbitration agreements in which one had authority to bind the other by signing an arbitration agreement.^[66]

Slightly more than a year later, another shift occurred when, in Weeks v. Crow, the First Division of the Fourth District interpreted the word “patient” in an arbitration agreement to apply only to the individual signing the arbitration agreement.^[67] This distinction was important because a broad interpretation of the word “patient” would have included the newborn infant of parents suing for wrongful death of their newborn baby, since the mother had signed an arbitration agreement. Instead, the court stated that, if the parties had intended the arbitration agreement to include medical services rendered to the child, the agreement should have expressly enumerated the yet unborn “patient.”^[68] The court noted that the arbitration agreement defined “patient” as the “patient or dependent of patient, whether or not a minor, or the heirs at law or personal representative of the patient.”^[69] The court viewed this definition to encompass only those alleging a cause of action arising from negligent injury to the signatory. The agreement admittedly contained no reference to the expected child. Thus, under Weeks, a parent is not bound to arbitrate the newborn's wrongful death cause of action unless the parent's arbitration agreement expressly includes the unborn child.

In contrast, five years after Weeks, in Herbert v. Superior Court and Kaiser Foundation Hospitals, Division Five of the Second District Court of Appeal held all heirs, children and adults, members and non-members of the health plan, bound to arbitration under language in the arbitration agreement stating that “all heirs” were bound to arbitrate any dispute as to medical malpractice on the signatory.^[70] The court held the general term “all heirs” was sufficient, without specifically enumerating any particular party, to bind the wife and all the blood relatives. The court relied on the prior case of Hawkins v. Superior Court, where the health plan arbitration agreement containing a clause binding “heirs,” applied to bind a wife to arbitrate her wrongful death cause of action of her signatory husband.^[71]

V. BINDING THE UNBORN CHILD

An unborn child, who may not yet have been conceived, may be held bound to a contract that one of his or her parents has signed.^[72] The unborn child is bound even though the non-signatory parent has no knowledge that the signatory parent has signed the arbitration contract, nor would have approved of the signing of such a contract.^[73] Indeed, as early as 1965, ten years before the enactment of section 1295, the California Supreme Court held that a contract for arbitration of medical negligence claims binding on an infant who was unborn at the time of the alleged malpractice committed upon the infant's father.^[74]

Contrarily, twenty years later, an appellate court found that, unless an infant or prospective neonate was expressly enumerated in the arbitration agreement, the unborn child was not bound by the terms of the parent's arbitration agreement.^[75] In Weeks v. Crow, the unborn child's parent, unlike the unborn child's parent in Doyle, was not a member of a medical group health plan.^[76]

Later, distinguishing Weeks and in compliance with Doyle, the Third District Court of Appeal held, in Wilson v. Kaiser Foundation Hospitals, that although a mother's arbitration agreement did not specifically express an intention to bind to arbitration an unborn child's subsequent claim of negligent medical injury, the child was bound by the mother's agreement because the unborn child became a member of the group health plan at birth.^[77] The Court found dispositive the terms of the agreement requiring arbitration of all claims “arising from rendition of or failure to render services under the agreement.”^[78] The alleged injury, which occurred during prenatal services, was undisputedly within the time frame in which the agreement was applicable. The Court stated that it was logical to treat the unborn child and the newborn child the same since “neither a fetus nor a minor has a capacity to contract for medical services.”^[79]

The Wilson Court distinguished Weeks stating that Weeks involved an arbitration contract as part of a hospital admission agreement, and the agreement did not purport to bind any person other than the signatory.^[80] In contrast, Wilson involved an arbitration provision as part of a comprehensive, prepaid family health care contract.^[81] Health plans contemplate inclusion of additional family members, and the mother was contemplating health care coverage of the newborn. The expectation of health plan medical coverage for a newborn provided the requisite implied intent to bind the newborn as a “patient” under a parent's arbitration agreement.

In Balanos v. Khalatian, the Second District Court of Appeals held that a mother's agreement to arbitrate “all medical malpractice claims relating to obstetric services” binds the newborn to the terms of the mother's valid arbitration agreement.^[82] This Court, using reasoning similar to that in Wilson, found that the authority of a minor's parent to contract on a minor's behalf extended to the unborn child. Bolanos further generalized, stating that a mother's contract providing for the submission of “all medical malpractice claims to arbitration” binds all parties alleging a cause of action based on medical services provided to the mother.^[83]

Bolanos involved an individual patient contracting with an individual physician, rather than an individual contracting with a group health plan. The arbitration contract in question stated, “[i]t is the intention of the parties that this agreement bind all parties whose claims may arise out of or relate to treatment or services provided by the physician including any spouse or heirs of the patient and any children, whether born or unborn, at the time of the occurrence giving rise to any claim.”^[84] This specificity of intention to bind parties undoubtedly was aimed at avoiding a trial court finding the agreement invalid under the authority of Weeks.

Bolanos concluded that, when a patient expressly contracts to submit to arbitration any dispute as to medical malpractice, and the agreement fully complies with the requirements of section 1295, it applies to all medical malpractice claims arising out of services contracted for, regardless of whether asserted by the patient or a third party.^[85]

VI. BINDING NONSIGNATORY PHYSICIANS

Non-signatories bound to arbitration under the terms of the contract includes non-signatory physicians as well. For example, in Harris v. Superior Court, the Second District Court of Appeal held that a physician's status as an employee of a professional corporation required him to submit to binding arbitration under the provisions of the health plan arbitration agreement, even though he neither signed the agreement, nor knew of its existence.^[86] The physician, through his corporation, had contracted to provide services for a medical provider organization (Maxicare) with whom the patient had signed the arbitration agreement. The court held that a physician's voluntary contract with the health care plan binds him to arbitration of professional negligence allegations under the health care plan's contracts with individual plan members.^[87] The court noted that a third party beneficiary cannot gain greater rights under the contract than one of the contracting parties. Thus, the doctor, as a third party beneficiary, was bound to arbitration just as the medical care provider organization was bound by its contract with its plan member.^[88]

In contrast, in Schirmer v. Fisher,^[89] a physician employed by a professional medical corporation was held not bound to arbitration under the terms of the arbitration contract signed by his physician employer and the patient. In Schirmer, the Fourth District Court of Appeal held that although the patient had signed an arbitration agreement with the physician-owner of the professional corporation, the patient was not bound to submit her claim to arbitration for alleged negligent treatment caused by a physician employee of a professional corporation because at the time she signed, the non-signatory physician was not yet employed by the professional corporation.^[90] The Court reasoned that because the non-signatory physician was not employed at the time the patient signed the agreement, the patient intended to be bound to arbitrate only disputes arising with the signatory physician. The Court stated:

Judicial enthusiasm for alternative methods of dispute resolution must not in all contexts override the rules governing the interpretation of contracts. Certain basic principles of contract interpretation are applicable. First the policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate. The contract extends only to those things concerning which it appears that the parties intended to contract.^[91]

Thus, in Harris, the non-signatory physician's status as an employee of a professional corporation required him to arbitrate because the patient's health care plan contract contained an arbitration provision.^[92] In Schirmer, the non-signatory physician employee of a professional corporation did not compel arbitration because the patient did not so intend when she signed the contract.^[93] Neither physician signed the arbitration contract, nor was even aware of the contract's existence.

Michaelis v. Schori extended binding non-signatory physicians to a situation where the signatory party would normally not have capacity to contract because of infancy.^[94] The Court applied California Civil Code section 34.5^[95] to section 1295 and held that a pregnant unemancipated minor's consent to medical care includes the minor's ability to contract for the arbitration of medical negligence disputes.^[96] The Court further held that the treating non-signatory physician was bound to the contract when he or she is an associate or partner of the signatory physician.

Michaelis rejected the notion that parties are not bound to arbitrate because one party, for example an unemancipated minor, did not realize what was being signed.^[97] The agreement signed by the minor provided that “[a]ll claims ... against the physician and the physician's partners, associates... must be arbitrated.”^[98] This was sufficient to bind the non-signatory associate physician to arbitrate the medical negligence dispute. Thus, a non-signatory physician was required to arbitrate where the signatory physician contracted with an unemancipated minor who did not realize she was signing an arbitration agreement. Explaining this apparently peculiar result, the court relied on the Bolanos' holding that “[s]ince the agreement ... is not one of adhesion, the general rule, that one who signs an agreement cannot avoid its terms on the ground that he failed to read it, is applicable.”^[99]

VII. INVALIDATING THE ARBITRATION AGREEMENT

Courts have inconsistently held challenged arbitration agreements valid when one of the parties to the agreement was a non-signatory. In Wheeler v. Saint Joseph's Hospital, the Fourth District Court of Appeal found an arbitration agreement provision in a defendant's hospital “Conditions of Admission” form, signed by the patient and containing a thirty day rescission period, to be unenforceable because the contract possessed “all the characteristics of a contract of adhesion” and because the patient did not read the form before he signed it.^[100]

The Wheeler Court also found an independent basis for reversal of the arbitrator's judgment. The United States Supreme Court had announced a principle that an arbitrator must disclose any dealings which might create an impression of possible bias; not doing so was grounds for vacating an award.^[101] In Wheeler, the physician member of the arbitration panel, after his appointment as an arbitrator, performed a medical evaluation of a patient in an unrelated case for a non-involved attorney in the defendant's firm.^[102] Because the hospital's arbitration agreement provided for the use of the rules of the American Arbitration Association rather than the rules of the California Arbitration Act,^[103] Wheeler found the Supreme Court ruling applicable and dispositive on this issue.^[104] Applying the federal rule, the arbitration award was set aside.

In Rhodes, the Second District Court of Appeals found the arbitration agreement valid against the signatory wife but invalid to bind the spouse’s husband even though the husband, acting as his wife’s agent, had signed the arbitration agreement binding his wife to arbitration.^[105] The Court also found the agreement did not apply to the couple's son who, the Court stated, had an “independent” cause of action of wrongful death of his mother.^[106] Rhodes held that the son had “constitutional and procedural” due process rights to litigate his case because the cause of action had accrued before enactment of section 1295. Thus, Rhodes concluded that a husband, acting as an agent for his wife, can bind the wife to arbitration but not bind himself to arbitrate a medical negligence dispute concerning his wife. Rhodes further concluded that a child, as a non-signatory to the agreement, is not bound to arbitrate under the terms of his or her parent's contract, at least if the cause of action arose before the enactment of section 1295.

The same division of the Second District Court of Appeals that decided Rhodes ruled ten years later, in Baker v. Birenbaum, that an arbitration agreement, even though fully complying with section 1295,^[107] was invalid as applied to a non-signatory spouse, notwithstanding that the cause of action was based on professional negligence proximately causing the personal injury or wrongful death.^[108] Baker simply stated that non-signatories to an arbitration contract were not bound to arbitration because they were not a party to the contract.

The California Supreme Court in 1965 tangentially addressed the application of section 1295 in Victoria v. Superior Court.^[109] Writing for the majority, Chief Justice Bird held a health care plan arbitration agreement was invalid where the cause of action was based on the negligent employment of an orderly accused of perpetrating an intentional and criminal act on a patient of the health plan, notwithstanding the language in the contract to cover “any claim arising from the rendition or failure to render services.”^[110] A vigorous dissent by Justice Lucas stressed that the case concerned Kaiser's affirmative negligent conduct and thus was within the scope of the arbitration agreement. The question in Victoria involved the selection of the forum for the plaintiff to prosecute her claim, not whether the plaintiff was entitled to a cause of action.^[111] Judge Lucas emphasized that well-established public policy favored arbitration as a speedy and inexpensive method of resolving disputes, beneficial to all parties. In Lucas's opinion, the majority in Victoria improperly focused on the employee's conduct, rather than the actual claim subject to arbitration.^[112]

Courts have rejected clauses within agreements which disturb the finality of the arbitrator's decision. In Benyon v. Garden Grove Medical Group, the court rejected an arbitration agreement provision which permitted the health care provider to reject the arbitrators' decision and resubmit the dispute to another arbitration panel consisting of three doctors.^[113] The court found this provision invalid because the plaintiff never agreed to it and because the provision was void as against public policy.^[114] The original arbitrators' award was final.

Consistent with this outcome and fifteen years after the enactment of section 1295, the Fourth District Court of Appeal, in Gold v. Saika, found an arbitration agreement provision, in full compliance with the provisions of section 1295, unenforceable due to violation of the public policy of “finality of an arbitration decision.”^[115] This particular arbitration agreement contained a clause which provided either party the option of disregarding the arbitration award if the award exceeded $25,000, and proceeding to trial. The Court emphasized “[t]he very essence of arbitration is finality,”^[116] and a proceeding to compel arbitration is a suit in equity for the specific performance of a contract.^[117] Because the trial de novo clause was unenforceable in equity, the court found the arbitration award to the plaintiff valid and final in compliance with the finality concept of arbitration. A trial de novo was not permitted notwithstanding the contractual provision. Saika suggested its finding was consistent with a California Supreme Court ruling that “arbitration awards are not subject to review for errors of law even when the result is to tolerate substantial injustice.”^[118] Thus, any clause in an arbitration contract disturbing the finality of an arbitration decision will likely be unenforceable.

In Engalla v. Permanente Medical Group, a First District Court of Appeal turned back a broad attack on the standard arbitration agreement of the Kaiser Foundation Health Plan (and its associated organizations of the Permanente Medical Group, Inc., and Kaiser Foundation Hospitals).^[119] The Court held Kaiser's standard arbitration contract valid. Additionally, the Court held that fraud in the course of arbitration could not serve as a basis for revoking the agreement and that arbitrators resolve discovery disputes.^[120]

Arbitration remedies are not substantially different than those remedies available at trial. Because section 1295 provides for arbitration for any dispute as to medical malpractice, arbitration is not limited to negligence claims. Claims have been arbitrated for intentional torts^[121] and have provided for punitive damages under the same MICRA limitations as those restricting a trial remedy.^[122] Also, nothing in the law precludes a claim based on recklessness.

California Code of Civil Procedure 1295(e) provides: “[s]uch a contract is not a contract of adhesion, nor unconscionable nor otherwise improper, where it complies with subdivisions (a), (b) and (c) of this section. Section 1295(a) provides for specific language in article one of the contract, 1295(b) provides for specific language “immediately” before the signature line, and 1295(c) provides for a 30 days period in which the contract can be rescinded.^[123]

VIII. REVIEW AND ANALYSIS OF SECTION 1295 CONTROVERSIES

The public policy favoring arbitration as a means of resolution of medical malpractice disputes is more readily understood when viewed in the context of pertinent California history regarding the enactment of section 1295. In 1973, the U.S. Department of Health, Education and Welfare completed and published a study of the decreasing availability of medical malpractice insurance and the increasing frequency and costs of medical malpractice litigation.^[124] A part of this report was dedicated to an examination of arbitration as a means of reducing the costs and increasing the efficiency of processing medical malpractice causes of action. This report specifically enumerated several advantages of arbitration:

1. Claims are handled more quickly.

2. Witnesses and their legal counsel save time during the dispute resolution process.

3. Decisions are made by a sophisticated person.

4. The setting is informal, and the technical rules of evidence may be relaxed.

5. The decision is final, with very limited potential for appeal.

6. The proceedings can be more easily conducted without the emotional overtones and adversarial atmosphere of the courtroom.^[125]

Also enumerated were some possible faults of arbitration:

1. It encourages small or nuisance lawsuits.

2. It is often conducted by sophisticated, or professional, people who may put greater value on loss of income than a jury might.

3. It may lead to more compromise judgments rather than to clear definition of fault and no fault.

4. The private nature of the process protects those at fault because it avoids the pressure of publicity as a device for coercing improvements in health care practices.^[126]

The California legislature considered the report during the Second Extraordinary Legislative Session called to ameliorate the professional medical liability insurance crisis in 1975. The initial medical negligence reform bill, submitted on May 19, 1975 by Assemblyman Barry Keene, called for the formation of a “California Arbitration Commission on Medical Injury Compensation” which would be responsible for hearing any dispute as to medical malpractice.^[127] The bill provided that arbitration agreements could be rescinded within thirty days after completion of contracted medical services.^[128] This “cooling off” period, when either party could rescind the contract, was intended to mollify those who contented the agreement was an adhesion contract. However, in the bill as originally submitted, if the patient rescinded the contract during active medical treatment, the health care provider could “cease providing medical services forthwith.”^[129] The impracticability of this provision became apparent early in the committee hearing processes necessitating its removal.

Governor Edmund G. (Pat) Brown signed the much amended bill in September 1975. The final bill contained the “findings” of the legislature:

The Legislature finds and declares that there is a major health care crisis in the State of California attributable to skyrocketing malpractice premium costs and resulting in a potential breakdown of the health delivery system, severe hardships for the medically indigent, a denial of access for the economically marginal, and depletion of physicians such as to substantially worsen the quality of health care available to citizens of the state. The Legislature, acting within the scope of its police powers, finds the statutory remedy herein provided is intended to provide an adequate and reasonable remedy within the limits of what the foregoing public health and safety considerations permit now and into the foreseeable future.^[130]

The purpose of MICRA was to avert the health care crisis by ensuring the availability of affordable malpractice insurance. The availability of affordable malpractice insurance in turn ensures that California citizens injured through the negligence of health care providers will be compensated. One part of this legislation intended to ensure the availability of malpractice insurance, is section 1295 of the California Code of Civil Procedure. However, the unresolved conflict among appellate courts over whether section 1295 requires third parties be bound to arbitration weakens the potential success of arbitration as an effective dispute resolution tool, and of MICRA as a means to strengthen health care delivery in California.

While section 1295 does not expressly provide for the binding of third parties to arbitration, the California Supreme Court recognized third parties could be bound to arbitrate medical negligence disputes in medical arbitration contracts negotiated by an agent or fiduciary.^[131] However, in the three cases where the Supreme Court considered medical arbitration agreements, the Court did not resolve the matter for the purposes of section 1295, since in each of the three cases the defendants were group health care plans, rather than individuals. Because the arbitration provisions of health care plans are expressly exempted from the requirements of section 1295,^[132] one can argue that there is no authority authorizing a court to bind non-signatories to arbitrate under section 1295. Similarly, one can maintain that the Second Appellate District Court of Appeals decision in Rhodes, wherein the Court found that neither the non-signatory husband nor her son were bound to arbitrate a wrongful death claim, did not address section 1295 because the cause of action accrued before its enactment.

Following the enactment of section 1295, appellate courts have differed as to whether or not arbitration contracts apply to third parties. The Second District Court of Appeal found a signatory husband's arbitration agreement invalid to bind his non-signatory wife to arbitration.^[133] Baker specifically noted that 1295 did not address whether claimants other than signatories could be bound by the arbitration agreement of the signatory. Significantly, because a group medical plan was not a party, Baker was not obligated to follow the authority of Doyle and Madden.^[134] Baker concluded a “more rigorous analysis” standard applied to individual arbitration contracts because of the inherent unequal bargaining position of individuals compared to members of group medical plans.^[135] On this basis, and notwithstanding the public policy in favor of arbitration, the court implied that an arbitration agreement could not validly be applied to a third person with a derivative claim.

Baker criticized a decision made three years earlier in Herbert^[136] wherein the Fifth Division of the same Second District Court of Appeals held the wrongful death claims of the spouse and children of a deceased health care plan member, as well as non-member adults asserting the same cause of action, bound to arbitration under the provisions of the signatory's health plan agreement.^[137] The Herbert court sensibly reasoned that, although wrongful death was a statutory cause of action of the heirs, it was derivative of alleged negligent harm caused the decedent.^[138] The Court noted the weight of authority bound non-signatories. Specifically, other appellate courts bound a non-signatory child to his father's arbitration agreement,^[139] a non-signatory spouse to the signatory spouse's arbitration agreement,^[140] and an unborn child to the mother's arbitration agreement.^[141]

Just a few months after Baker, the Second Division of the Second District Court of Appeals held a signatory spouse's arbitration contract, which fully complied with the provisions of section 1295, valid to require a non-signatory spouse to arbitrate a loss of consortium claim.^[143] Gross v. Recabaren stated it would be impractical for a physician to ascertain the patient's marital status on each visit.^[144] This would have been necessary if the court had held a non-signatory spouse not bound since a potential cause of action would accrue, by the terms of the arbitration contract, when the patient married. To preclude a potential independent cause of action not bound to the arbitration agreement, the physician would need to obtain the non-signatory spouse's express agreement to arbitrate a malpractice dispute derivative of medical care rendered to the signatory patient spouse.^[145] The Court reasoned it would be impermissible to allow a non-patient spouse to control a patient spouse's decision whether to arbitrate claims related to his or her medical care because this would effectively constitute a veto over a person's health care decisions.^[146] If reproductive health care decisions were at issue, for example, requiring a husband's permission to arbitrate could violate of a woman's personal autonomy rights under the Constitution.^[147] The Gross court concluded by stating, when a patient contracts to submit to arbitration “any dispute as to medical malpractice,^[148] and the contract complies with the provisions of section 1295,”^[149] the agreement applies to all medical malpractice claims arising out of the contracted medical services, whether the asserting party is the patient or a third party. This finding directly contradicts and, for these reasons, seems analytically superior to Baker.

Subsequent holdings in the Fourth District Court of Appeals, in Mormile v. Sinclair,^[150] and in the First and Second Divisions of the Second District Court of Appeals, in Michaelis,^[151] and in Bolanos,^[152] respectively, reiterate the simple, unambiguous, and logical conclusions of Gross: “when a patient expressly contracts to submit to arbitration any dispute as to medical malpractice, and that agreement fully complies with section 1295, it is deemed to apply to all medical malpractice claims arising out of the services contracted, whether asserted by the patient or a third party.”^[153]

In considering whether “heirs” are bound to arbitrate under the provisions of section 1295, one court use the term “heirs” to apply to persons with standing to maintain a wrongful death claim, whether or not a member of the health plan.^[154] Other courts have interpreted section 1295(a) to apply to all claims of medical malpractice arising out of the services contracted, thus binding all third party claims, including the claims of heirs.^[155] These positions conflict with Baker which implied that a child of a signatory decedent would not be bound to arbitrate because only the signatory was bound under the terms of section 1295.^[156] Assuming a public policy favoring arbitration over trial litigation, the findings in Herbert and Gross should control.

The California Supreme Court, in Doyle and Madden, recognized that a parent or legal guardian may contract on behalf of the minor child to require submission to arbitration any claims of the child in medical malpractice disputes. The right to bind the child derives from the duty of care owed to the child by the parents or legal guardian.^[157] Indeed, section 1295(d) provides that “where the contract is one for medical services to a minor, it shall not be subject to disaffirmance if signed by the minor's parent or legal guardian.”^[158] Therefore, the right of a parent or guardian to bind a child to arbitration contractually, and the inability of the child to disaffirm that contract, is settled law.^[159] Appellate courts have found that this also applies to children not yet born,^[160] and even to children not yet conceived.^[161]

Wilson v. Kaiser Foundation Hospitals held that, where the unborn child becomes a member of the plan at birth, the arbitration provisions of the health plan are binding on the newborn.^[162] Until born alive, the unborn child does not have a right to a cause of action because the unborn child is not a legal “person.”^[163] That the fetus was not a member of the plan at the time of injury is not relevant to his or her right to assert a cause of action at birth.^[164] When that right accrues, the newborn is a member of the health plan and thus bound by its arbitration provisions.^[165]

Pietrelli v. Peacock used similar reasoning to bind a not yet conceived child to arbitration under the mother's arbitration agreement where the mother's agreement expressly stated an intention to apply to any controversy between the doctor and persons, born or unborn, on behalf of whom the mother had the power to contract.