B. The Arbitration Service Agreement.

     On or about May 31, 1991, Mr. Engalla and members of his immediate
family served on Kaiser a written demand for arbitration of their claims that
Kaiser health care professionals had been negligent in failing to diagnose
Mr. Engalla's lung cancer sooner.
     Apparently, the Engallas' attorney, Mr. Rand, believed they were
required to do so pursuant to the Service Agreement which was in effect at
the time. n2
     The arbitration clause contained in the Service Agreement described the
process for initiating a claim, the requirement that three arbitrators be
used, and the time frame within which the arbitrators were to be selected.
     In this regard, section 8.B of the Service Agreement provides that each
side "shall" designate a party arbitrator within 30 days of service of the
claim and that the 2-party arbitrators "shall" designate a third, neutral
arbitrator within 30 days thereafter. n3
               >? Why wouldn't breach of this clause be the
               >? basis for an immediate Breach of Contract claim?
               >? Breach of Condition Precedent to arbitration.
     Section 8.C sets forth general provisions concerning the arbitration of
claims and incorporates applicable California law, including the California
statute of limitations, the California Code of Civil Procedure provisions
relating to arbitration, and the California Medical Injury Compensation
Reform Act of 1975 (MICRA).
 
- - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - -
 
     n2 Mr. Rand had previously handled a malpractice claim against Kaiser
and, thus, knew of the arbitration requirement.

n3 The relevant portions of the Kaiser arbitration provision are as follows:
     "Within 30 days after initial service on a Respondent, Claimant and
Respondent each shall designate an arbitrator and give written notice of such
designation to the other, and Claimant shall forward $ 150, made payable to
Kaiser Foundation Health Plan Arbitration Account, to Kaiser Foundation
Health Plan ....
     This $ 150 will be deposited with Respondent's $ 150 in a special
account maintained by Bank of America National Trust and Savings Association
[and will] ... provide the initial funds to pay the fees of the neutral
arbitrator and expenses of arbitration as approved by him or her ....
     Within 30 days after these notices have been given and payments made,
the two arbitrators so selected shall select a neutral arbitrator and give
notice of the selection to Claimant and all Respondents served, and the three
arbitrators shall hold a hearing within a reasonable time thereafter ...."
 
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - -

     The Service Agreement further provides a broad statement governing its
interpretation and, in that regard, states that appellant Kaiser Foundation
Health Plan (Health Plan) "is a named fiduciary to review claims under the
Service Agreement."
     The nature of the claims for which Health Plan promises to act as a
fiduciary is not specified, but a review of the Service Agreement reveals
that the term "claims" appears in section 8, entitled "Arbitration of
Claims."

     The program was originally designed and written to be "equally fair to
both parties," but Kaiser now contends that it has no duty to maintain such a
program because it claims to be free to "act[] in its own business interests
when negotiating the terms of its [S]ervice [A]greement."
     However, the arbitration program is not only designed, written, and
mandated by Kaiser; it is also, as Kaiser concedes, administered by it.
     In this regard, Kaiser collects funds from claimants and holds and
disburses them as necessary to pay the neutral arbitrator and expenses
approved by him or her.
     It monitors administrative matters pertinent to the progress of each
case including, for example, the identity and dates of appointment of
arbitrators.
     It does not, however, employ or contract with any independent person or
entity to provide such administrative services, or any oversight or
evaluation of the arbitration program or its performance.
     Rather, administrative functions are performed by outside counsel
retained to defend Kaiser in an adversarial capacity and, as Kaiser further
concedes, such counsel are ethically obliged to act zealously and exclusively
in the best interests of their client.
               >? Why isn't this dual role a breach of
               >? Fiduciary responsibility?
               >? Why doesn't it make the whole process "corrupt"?

     The fact that Kaiser has designed and administers its arbitration
program from an adversarial perspective is not disclosed to Health Plan
members or subscribers.
     It is not set forth in the arbitration provision itself, or in any of
Kaiser's publications or disclosures about the arbitration program, and it
was unknown to Mr. Engalla's employer, who signed the Service Agreement on
his behalf.
     The employer's representative read the provisions of the Service
Agreement, and believed that the arbitration process would be equally fair to
both the employee-subscriber and to Kaiser, and that it would allow employees
to resolve disputes quickly and without undue expense.
     His expectation in that regard was consistent with the intent of Health
Plan's general counsel, Scott Fleming, who originally drafted the arbitration
provision, as well as various publications disseminated to Kaiser members.
     In those materials, Kaiser represented that an arbitration in its
program would reach a hearing within several months' time, and that its
members would find the arbitration process to be a fair approach to
protecting their rights.
               >? Why isn't Kaiser held to these representations?
               >? Why isn't this false advertising?
               >? Why isn't this fraudulent misrepresentation?
               >? Was this information intentionally withheld?
               >? Was it available to potential members who asked?