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The provisions for arbitrator disqualification established by these rules may not be waived or superseded by a private contract.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.)

Keep Control during the Arbitration Process.

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:
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
(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]).
In other words, an arbitrator exceeds his powers when he acts in a manner not authorized by the contract or by law."

After Arbitration, what are bases for a Trial de novo?

Defeat defense attempts to relitigate

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!

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California Code of Civil Procedure
Title 9: Arbitration