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Engalla v. Permanente Medical Group, Inc.

Supreme Court of California

June 30, 1997, Decided

No. S048811.


 [*960]  [**907]  [***847]    MOSK, J. 

In this case we consider the circumstances under which a court may deny a petition to compel arbitration because of the petitioner's fraud in inducing the arbitration agreement or waiver of the arbitration agreement.  [**908]  Plaintiffs are family members and representatives of the estate of Wilfredo Engalla (hereafter sometimes the Engallas). Engalla was enrolled, through his place of employment, in a health plan operated by the Permanente Medical Group, Inc., Kaiser Foundation Hospitals, and the Kaiser Foundation Health Plan (hereafter Kaiser).

Prior to his death, Engalla was engaged in a medical malpractice dispute with Kaiser, which,  [****3]  according to the terms of Kaiser's "Group Medical and Hospital Services Agreement" (Service Agreement), was submitted to arbitration. After attempting unsuccessfully to conclude the arbitration prior to Engalla's death, the Engallas filed a malpractice action against Kaiser in superior court, and Kaiser filed a petition to compel arbitration pursuant to Code of Civil Procedure section  [***848]  1281.2. 1 In opposing the petition, plaintiffs claimed that Kaiser's self-administered arbitration system was corrupt or biased in a number of respects, that Kaiser fraudulently misrepresented the expeditiousness of its arbitration system, and that Kaiser engaged in a course of dilatory conduct in order to postpone Engalla's arbitration hearing until after his death, all of which should be grounds for refusing to enforce the arbitration agreement. The trial court found in the Engallas' favor, denying Kaiser's petition to compel arbitration on grounds of fraud, but the Court of Appeal reversed.

 [****4]  We conclude that there is indeed evidence to support the trial court's initial findings that Kaiser engaged in fraudulent conduct justifying a denial of its petition to compel arbitration, but we further conclude that questions of fact remain to be resolved by the trial court before it can be determined whether Kaiser's conduct was actually fraudulent. Similarly, there is a factual question as to whether Kaiser's actions constituted a waiver of its right to compel arbitration. We accordingly reverse the judgment of the Court of Appeal and direct it to remand the case to the trial court for such factual determinations. As will appear, although we affirm the basic policy in favor of enforcement of arbitration agreements, the governing statutes place limits on the extent to which a party that has committed misfeasance in the performance of such an agreement may compel its enforcement.

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15 Cal. 4th 951 *; 938 P.2d 903 **; 64 Cal. Rptr. 2d 843 ***; 1997 Cal. LEXIS 2971 ****; 97 Daily Journal DAR 8384; 97 Cal. Daily Op. Service 5206; 21 Employee Benefits Cas. (BNA) 1407

NIDA ENGALLA et al., Plaintiffs and Respondents, v. PERMANENTE MEDICAL GROUP, INC., et al., Defendants and Appellants. PERMANENTE MEDICAL GROUP, INC., et al., Petitioners, v. THE SUPERIOR COURT OF ALAMEDA COUNTY, Respondent; NIDA ENGALLA et al., Real Parties in Interest. WILLIS F. McCOMAS et al., Petitioners, v. THE SUPERIOR COURT OF ALAMEDA COUNTY, Respondent; NIDA ENGALLA et al., Real Parties in Interest.

Subsequent History:  [****1]  As Modified July 30, 1997.

Prior History: Court of Appeals of California, First Appellate District, Division Two. A062642. A063427. A063547. Superior Court of Alameda County, Super. Ct. No. H154976-4. Joanne C. Parrilli, Judge.

Disposition: For the foregoing reasons, the judgment of the Court of Appeal is reversed with directions to remand the case for proceedings consistent with this opinion.


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